IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE FRIDAY, THE 22ND AUGUST 2008 / 31ST SRAVANA 1930 WP(C).No. 22606 of 2007(N) ------------------------------------ PETITIONERS: ---------------------- 1. O.DEVASSY,S/O.OUSEPH,AGED 70 YEARS, RESIDING AT ENCHAKKAL HOUSE,NEDUNGAPRA P.O, PERUMBAVOOR. 2. V.M.HAMZA,S/O.MUHAMMED, AGED 60 YEARS,RESIDING AT VELLAKUDY HOUSE, KANDANTHARA P.O,ALLAPRA P.O PERUMBAVOOR. 3. DEVASSY JOSEPH,S/O.JOSE, AGED 55,RESIDING AT OVUNJAMALI,PULLUVAZHY P.O, PERUMBAVOOR. 4. N.A.IBRAHIMKUTTY,S/O.AHMED,AGED 70, NELLIKKAKATHU HOUSE,MARAMPALLY P.O,PERUMBAVOOR. 5. MOLLY VARHGESE,W/O.VARGHESE,AGED 48, KUZHIKKADAN,KOMBANADU P.O,PERUMBAVOOR,. BY ADV. SRI.JOHN JOSEPH VETTIKAD RESPONDENTS: ----------------------- 1. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) ERNAKULAM. 2. THE RETURNING OFFICER, KUNNATHUNADU TALUK HOUSING CO-OPERATIVE SOCIETY LTD NO.307,CO-OPERATIVE INSPECTOR,KUNNATHUNADU UNIT. 3. THE KERALA STATE CO-OPERATIVE HOUSING FEDERATION LTD,KALOOR KOCHI. REPRESENTED BY ITS MANAGING DIRECTOR. ADV. SRI.A.K.CHINNAN FOR R3 SMT.SUSAL A. CHINNAN FOR R3 SRI.P.C.SASIDHARAN ADVOCATE GENERAL FOR R1 GOVERNMENT PLEADER FOR R1 & 2 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22/08/2008, ALONG WITH WPC NO. 24584 OF 2007 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C) NO.22606/2007 APPENDIX PETITIONERS EXHIBITS EXT.P1:- COPY OF THE CERTIFICATE OF MERIT ISSUED BY EKRALA STATE HOUSING FEDERATION LTD., DT. 12.7.03. EXT.P1(a):- COPY OF THE CERTIFICATES OF MERIT ISSUED BY KERALA STATE HOUSING FEDERATION LTD., DT. 28.7.04. EXT.P2:- COPY OF THE SCHEDULED OF THE ELECTION PUBLISHED BY THE ELECTION COMMISSION DT. 19.6.07. EXT.P3:- COPY OF THE NOTICE DT. 13.7.07 PUBLISHED BY THE RETURNIGN OFFICER. EXT.P4:- COPY OF THE LETTER ISSUED BY THE IST RESPONDENT WITH NO.7258/06 DT. 9.2.07. EXT.P5:- COPY OF THE REPLY LETTER DT. 18.3.07 SUBMITTED BY THE SOCIETY TO IST RESPONDENT. EXT.P6:- COPY OF THE SHOW CAUSE NOTICE NO.HM/7258/06 DT. 14.6.07 ISSUED TO THE PETITIONERS BY THE IST RESPONDENT. EXT.P7:- COPY OF THE REPLY SUBMITTED BY THE PETITIONERS TO THE IST RESPONDENT. EXT.P8:- COPY OF THE ORDER NO.7258/06/K.DIS DT. 16.7.07. EXT.P9:- COPY OF THE NEWS PAPER REPORT IN MALAYALA MANORAMA DAILY DT. 10.7.07. EXT.P10:- COPY OF THE ORDER NO.4185-A/P.L/2007-2008 DT. 26.7.07. EXT.P11:- COPY OF THE NOTICE NO.B.M.41/PL/2004-2009 DT. 26.7.07. EXT.P12:- COPY OF THE COVERING LETTER TO THE FEDERATION ALONG WITH THE COPY OF THE RESOLUTION OF THE KUNNATHUNDAD TALUK HOUSING CO-OPERATIVE SOCIETY DT. 31.7.07. EXT.P13:- COPY OF THE RELEVANT PORTIONS OF THE MINUTS OF THE MEETING OF THE BOARD OF DIRECTORES OF THE KERALA STATE CO-OPERATIVE HOUSING FEDERATION LTD., KOCHI HELD ON 8.8.07. /TRUE COPY/ P.S. TO JUDGE tss PIUS C. KURIAKOSE, J. ----------------------------------------------- W.P.(C)Nos. 22606 & 24584 OF 2007 ----------------------------------------------- Dated this the day of July, 2008 J U D G M E N T The petitioners in WP(C). No. 22606 of 2007 are five members of the Managing Committee of Kunnathunadu Taluk Housing Co-operative Society Ltd. No. 307 (hereafter referred as the Society). First respondent in that writ petition is Joint Registrar of Co-operative Societies (General), second respondent is the Returning Officer and the third respondent is the Kerala State Co-operative Housing Federation Ltd. The petitioner in WP(C).24584 of 2004 is also an elected member of the Managing Committee of the same Society and the respondents therein are the Joint Registrar (R1), the Society (R2) and the Administrator appointed for the Society (R3). The Managing Committee of the Society has been ordered to be superseded by the first respondent and the order of the supersession is produced as Ext.P8 in WP(C). No. 22606 of 2007 and as Ext.P3 in WP(C). No. 24584 of 2007. 2. I shall refer to the facts as they are stated in WP(C). No. 22606 of 2007. The Society is a primary society affiliated to the Kerala State Housing Federation Ltd. The Society was registered in the year 11-1-1973 and at present the Society has 2835 members. WP(C)N0s. 22606 & 24584/07 -2- The share capital of the Society is Rs.49,99,620/- and its working capital is Rs.4,73,07,053.75. The society was adjudged as the best primary society in Ernakulam District by the Apex Society. Exts.P1 and P1(a) certificates of merit issued by the Apex Society on 12-7- 2003 and 28-7-2004 are relied on in this context. Durind the last 10 years the Society has advanced a sum of Rs.14,03,49,250/- in 2317 loans. The present Managing Committee was elected on 12-8-2002. Since he terms of the Committee was due to expire a resolution was adopted on 28-4-07 to conduct election to the Managing Committee on 29-7-2007. Request was made to the Election Commission to take necessary steps for conduct of election. The Election Commission has published time schedule Ext.P2 dated 19-6-2007. The election is to be held for electing members to the Managing Committee. Pursuant to Ext.P2 19 candidates submitted nomination papers and after withdrawal only 9 candidates remained in the list. Ext.P3 notice dated 13-7-2007 has been published by the Returning Officer. Referring to Rule 35(h) of the KCS Rules the petitioners claimed that all the 9 candidates in Ext.P3 are entitled to be declared as elected before 29-7- 2007. Ext.P4 copy of letter dated 9-2-2007 was issued by the first respondent Joint Registrar on the basis of an urgent inspection conducted in the Society by the Unit Inspector. Under Ext.P4 the WP(C)N0s. 22606 & 24584/07 -3- Society is directed to cure certain defects pointed out in the report of the Inspector. To Ext.P4 the President of the Society submitted Ext.P5 detailed reply explaining the steps which had been taken for curing the defects pointed out and also stating that certain defects have already been cured. The petitioners submit that for the past many years the Board of Directors of the Society consists entirely of persons owing allegiance to political parties opposed to the present ruling front. In the present election also the 9 candidates who are entitled to be declared elected owe allegiance to political parties opposed to the present ruling front. The petitioners point out that the President of the Society is also a member of the Board of Directors of the Apex Society, the Kerala State Co-operative Housing Federation in his capacity as a representative of the primary society. It is alleged that it was with the intention of somehow wresting power from the petitioners by superseding the elected Managing Committed consisting mainly of the petitioner and to appoint an administrator and thereby stall the election process which are already started that the inspection was conducted unauthorisedly by the Deputy Registrar of Co-operative Societies (Vigilance, Ernakulam) which was challenged in this court by filing WP(C). No. 18570 of 2007. It is submitted that the enquiry conducted was in clear violation of sections 65 and 66 of the KCS Act WP(C)N0s. 22606 & 24584/07 -4- and Rule 66 of the KCS Rules. Another intention was to capture power in the Apex Court by destroying the quorum in the Apex Society which can be done by removing the President of the Society, an object which can be achieved only superseding the Society. On receiving show cause notice under section 32(1) requiring them and other Managing Committee members as to why the Managing Committee members should not be superseded the petitioners approached this Court by filing WP(C). No.19153 of 2007. This Court disposed of that writ petition directing the Registrar to consider the objections filed by the petitioners and to pass final orders only after giving the petitioners an opportunity of being heard. Ext.P6 is true copy of the show cause notice and Ext.P7 is true copy of the reply submitted by the petitioners to Ext.P6. As apprehended the petitioners committee is now superseded and Ext.P8 is the supersession order. According to the petitioners the point of time at which Ext.P8 has been issued, the undue haste and the manner in which the same has been issued will demonstrate the mala fides, the ulterior motives and also the arbitrariness which taint Ext.P8. The petitioners submit that Ext.P8 is based on a report allegedly submitted by the Deputy Registrar of Co- operative Society (Vigilance) and that the said report is clearly violative of sections 65 and 66 of the KCS Act and Rule 66 of KCS WP(C)N0s. 22606 & 24584/07 -5- Rules. Copy of the report have never been served on the petitioners nor was the contents of the reveal to the petitioners. The report has been made in violation of the statutory rules and behind the back of the petitioners. Ext.P8 order passed on the basis of such a report is illegal and is liable to be quashed. The following were the prayers in WP(C). No. 22606 of 2007 as filed it originally. i. Issue a writ of certiorari or direction in the nature thereof calling for the records relating to Ext.P8 and quash the same. ii. Direct the respondents to forbear from interfering n the election process for the conduct of the election to the members of the managing committee of Kunnathunadu Taluk Housing Co-operative Society Ltd. No.307. On considering WP(C). No. 22606 of 2007 for admission this court passed on 24-7-2007 the following interim order. “Admit. 2. Learned Special Government Pleader for Co-operation accepts notice for respondents 1 and 2. Issue notice to respondent No.3 by speed post with acknowledgment due returnable within ten days. 3. Heard learned counsel for the petitioners and learned Special Government Pleader. 4. Ext.P8 order passed under Section 32(1) of Kerala Co- operative Societies Act is impugned in this writ petition by the Board of embers of the Kunnathunadu Taluk Housing Co- operative Society. It is contended by the petitioners that Ext.P8 order has been passed hastily with ulterior motives. Ext.P2 notification issued by the State Co-operative Election WP(C)N0s. 22606 & 24584/07 -6- Commission on June 19 2007 will show that the election process to the society had already commenced. Preliminary voters' list was published on July 2, 2007. As per the schedule all other proceedings except polling is over. Voting is scheduled to be held on July 29, 2007, if it becomes necessary. It is brought to my notice that polling may not be necessary at all, since only nine candidates remain in the fray for the nine seats in the Board. The specific contention of the petitioners is that the entire exercise by the department is aimed at nullifying the nomination of the delegate of the society to the Kerala State Co-operative Housing Federation, respondent No.3 herein. 5. Learned Special Government Pleader submits that the Administrator had already assumed charge on the next day of the order viz. July 17, 2007. It is also submitted by the learned Special Government Pleader that she has been informed today that the Administrator has already initiated action to revoke the decision of the Board nominating its delegate to the Federation. Learned counsel for the petitioners asserts that no such order has so far been served on the Society or its President till now. Having carefully perused the impugned order and having heard learned counsel for the parties, I am of the view that the Administrator who has reportedly assumed charge (which has not been disputed by the petitioners) shall ensure that the election process which has already commenced, is not disrupted in any manner. The Administrator and respondent No.2 shall ensure that the process of election in the society is completed and results are declared as per the schedule notified by the Election Commission in Ext.P2. Administrator shall only attend to the day today affairs of the Society. He shall not take any action to revoke the decision of the Society nominating its delegate to the Kerala State Co-operative Housing Federation, Kochi without obtaining orders from this Court. The petitioners produced Exts.P10 toP13 and got the writ petition amended by incorporating additional paragraphs 19 to 22, additional grounds 18 to 22 and additional prayer 1(b) as follows: WP(C)N0s. 22606 & 24584/07 -7- “1(b).Issue a writ of certiorary order or direction in the nature thereof and calling for the records relating to Ext. P10 and quashed the same. Amendment was sought for on the reason that though the first petitioner was permitted pursuant to the interim order dated 24-7-07 to participate in the executive committee meeting of the third respondent Federation held on 27-7-07 and 30-7-07 after the completion of the meeting on 30-7-2007 the Managing Director in charge of the third respondent Federation handed over a copy of the communication dated 26-7-2007 informing the petitioner that membership of the first petitioner ceased to exist from the date when the administrator took charge in the Society. Ext.P10 is copy of the said letter dated 26-7-2007 issued by the third respondent. Ext.P11 is true copy of the notice dated 26-7-2007 issued by the third respondent regarding meeting of the executive committee to be held on 8-8-2007 at Thiruvananthapuram. In Ext.P11 item No.22 in the agenda was regarding implementation of this court's interim order dated 24-7-2007. It was stated in the amendment application that pursuant to the interim order of this court result of the election was declared on 29-7-007 and the administrator entrusted the charge of the Society to the newly elected committee on 31-7-2007 and on the same day the newly elected committee was convened and the WP(C)N0s. 22606 & 24584/07 -8- committee elected the first petitioner himself as the delegate of the Society to the Federation. Ext.P12 is true copy of the covering letter sent to the Federation along with copy of the resolution of the society dated 31-7-2007. It is stated further that the committee of the Co- operative Housing Federation resolved that the decision of the society is without consulting the federation is wrong and that in view of the interim order of this Court there is nothing wrong in conducting election. Ext.P13 is relevant portion of the minutes of the meeting of the Board of Directors of the Co-operative Housing Federation. The following are the prayers sought for in WP(C). No. 24584/07: i. Issue a writ of certiorari to quash Ext.P3. ii. Issue a writ declaring that Ext.P3 order has been passed in total violation of the requirements of law including the requirement of consultation and hence the order is bad. Iii. Issue a writ declaring that Ext.P3 has been passed for other oblique reasons which is no justification for invoking the power under section 32 of the KCS Act. The first respondent Joint Registrar has filed counter affidavits in both the cases. In WP(C). No. 22606 of 2007 while it is not disputed that the committee of the Society took steps for conduct of elections and that a Returning Officer was appointed by the Election Commission in that regard and also that the said Returning Officer initiated action it is submitted that when inspection conducted in the Society by the Deputy WP(C)N0s. 22606 & 24584/07 -9- Registrar of Co-operative Societies (Vigilance) as a part of her duty on the 24th, 25th, 26th, 28th and 29th of May, 2007 it was found that the committee of the Society had committed serious irregularities in the working of the Society and submitted a report in that regard. It is pointed out that the first petitioner who is the President of the Society has given to himself three house construction loans of Rs.1 lakh, Rs.3 lakhs and Rs.3,50,000/- respectively on 28-12-1996, 30-10-2000 and 22-10-2005. The first loan was given to him for the construction of a residential house on his house plot in Vengoor Village and was to have been repaid within a period of 15 years. The first petitioner did construct house on the property by utilising the loan amount. But he repaid the loan after a period of 4 years of the drawal of the loan and within even closed the loan account. The second loan application was sanctioned to him by a circulated resolution and the entire loan amount was released to him in one instalment (contrary to the practice of releasing housing loan amounts in instalments according to the progress of the construction). This loan was repaid by the first petitioner in full on the 5th year though the period of the loan was 15 years. The third loan application was submitted by the first petitioner at a time when himself was the President of the Committee and was sanctioned to him by a circulated resolution. It is pointed out that WP(C)N0s. 22606 & 24584/07 -10- along with the subsequent loan application the first petitioner had not submitted documents which are otherwise required for sanctioning of housing loans. It is pointed out that as per the rules of the Apex Society, plan, estimate, location sketch, encumbrance certificate, possession certificate, income certificate, title documents of the plot are all to be submitted. Such documents were submitted by the first petitioner only in connection with the first loan. It is pointed out that the second and third loans were regarding construction on the very plot and in which he constructed house utilising the first loan and since he has not constructed any house as per the loan amount drawn by him as per the second and third applications, it is clear that the entire loan amount drawn under the second and third loans was misutilised by him. It is pointed out that as per byelaw17 adoption of resolution by circulation is to be resorted to only in emergencies. The non- verification by the Committee as to whether houses were constructed by the first petitioner utilising the loan amount is a major lapse. It is then contended that the second petitioner who was also a member of the Committee was sanctioned a house repair loan of Rs.62,500/- on 27-11-2007 which had been kept in arrears by him till 18-12-2006, but on 19-12-2006 he closed that loan and immediately thereupon applied for another loan of Rs.1,10,000/- for construction of a house. Though WP(C)N0s. 22606 & 24584/07 -11- the purpose of the loan has not been specified in the loan application the Committee sanctioned the loan and released the amount in one instalment. Second petitioner did not construct any house utilising this amount. In this case also he had not submitted the necessary documents and thus it can be seen that the committee was negligent in the performance of their duties in the sanctioning and utilising of the loan. It is then pointed out in the counter that while as per byelaw 26 of the Society the maximum cash balance which can be retained in the Society by the Secretary is only Rs.50,000/- the amount far in excess of Rs.50,000/- was retained in the Society by the Secretary. But the Committee never took any action against the Secretary for recovery of penal interest on amount kept in excess of the limit. It is pointed out that an evening branch of the Ernakulam District Co-operative Bank is functioning adjacent to the Society and hence there is absolutely no justification for keeping cash in excess of the limits in the bank itself. It is then alleged that though as on 30-9-2006 a total amount of Rs.3,38,00,000/- was realisable from 513 loanees which includes a sum of Rs.1,20,00,000/- kept in arrears by them the Committee did not take effective action for realising the heavy overdue of loans from its members. It is pointed out that amounts are due to the State Co- WP(C)N0s. 22606 & 24584/07 -12- operative Housing Federation which did not approve the action of the Society re-scheduling the repayment of 51 loans for the purpose of reducing the overdue position. It is then alleged that the committee of the Society was indulging in the practice of admitting members at the time of election and removing members so admitted immediately after the election. This practice has been resorted to in 2002 for the purpose of enabling the Committee Members to secure majority in the election. It is submitted that on 16-1-2007, 116 new members were admitted and that these members never require any loan from the Society. Section 24 of the KCS Act is referred to and it is stated that share capital of admitted members is to be refunded only after a period of three years of admission. It is alleged that this section has been violated in the case of 38 members admitted on 19-2-2002 and 20-2-2002. Referring to rule 63 of the KCS Rules it is contended that the Committee has violated that rule which insists that 20% of the fixed deposit collected by the Society shall be kept as fluid resources so that demands for withdrawal can be honoured immediately has been violated. The total loss of the Society for the year 2002-2003 is Rs.62.88 lakhs and it is alleged that the Committee did not take any steps for reducing the loss. Referring to rule 47(d) of the KCS Rules it is submitted that it is WP(C)N0s. 22606 & 24584/07 -13- the Committee of the Society which primarily responsible for the proper functioning of the Society and it is alleged that the members of the Committee are working in the manner detrimental to the Society and against the provisions of the KCS Rules, byelaws and sub-rules of the Apex Society. When these irregularities were brought to the notice of the first respondent the first respondent bona fide felt that allowing the Committee to continue in the office will be detrimental to the Society and hence they should be removed at the earliest. This was why show cause notice under section 32 (1) of the Act was given to the members of the Committee. Explanations in writing submitted by the petitioners in response to that notice was considered, the petitioners were personally heard and thereafter only the order of supersession was passed. It is claimed that the Circle Co-operative Union, Kunnathunadu and the Kerala State Co-operative Housing Federation have been consulted in the matter. The counter affidavit goes on to repudiate the various grounds raised in the writ petition. It is claimed that the election process was not in any way stalled by the administrator of the Society. The allegation that the very object in issuing Ext.P8 supersession order is to keep power in the apex federation by destroying the quorum in the federation is stoutly denied. It was within the powers of the Deputy Registrar (Vigilance) to inspect WP(C)N0s. 22606 & 24584/07 -14- the Society and detected irregularities and to report the matter to the first respondent Joint Registrar. What has been did in this case has been in accordance with the rules. Principles of natural justice also have been complied with in the matter. Since it was found that the President and Committee members were misusing the Society's funds and were violating the rules and the byelaws the first respondent had no option other than to remove them, so that the interest of the Society could be safeguarded. Second respondent in WP(C) No.22606/07 (Returning Officer) is Inspector of Co-operative Societies, Mazhuvannur Unit. He was appointed for conduct of elections. The Deputy Registrar (Vigilance) conducted inspection in the Society in discharge of her duty which is to detect irregularities by conducting visits. Answering the allegation that principles of natural justice have been violated and that the Circle Co-operative Union and Kerala State Housing Federation have not been consulted it is claimed that the details of the irregularities reported by the Deputy Registrar (Vigilance) had been enumerated in the show cause notice and that the Circle Co-operative Union as well as the financing institution have been meaningfully consulted by forwarding copies of all relevant papers to them including the tentative opinion formed by the first respondent and that despite giving sufficient time for offering remarks they did not WP(C)N0s. 22606 & 24584/07 -15- give any remarks on the basis of which it was presumed that they have no objection in the proposal to supersede the Society. It is stated that though the Administrator took charge of the Society on 17-7-2007 he became obliged to conduct the election and he has handed over the charge of the Society to the newly elected Committee on 31-7-2007, but since some of the members of the earlier Committee which has been superseded are members of the new Committee the first respondent has become duty bound to proceed in accordance with law for disqualifying those members from membership. Referring to the interim orders passed by this court on 24-7-07