IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No.8579 of 2009 1. Dr.Sunil Kumar Singh, Son of Sri Maharana Pratap Singh, Chairman, BISCOMAUN, Patna. 2. Raghubansh Narain Singh, Son of Late Ram Phal Singh, Director, BISCOMAUN, Patna. 3. Ram Kalewar Pd. Singh, Son of Sri Ram Jatan Singh, Director, BISCOMAUN, Patna. 4. Maheshwar Mishra, Son of Late Ram Shanehi Mishra, Director, BISCOMAUN, Patna. 5. Anwar Ansari, Son of Ramzan Ansari, Director, BISCOMAUN, Patna. 6. Urmila Devi, wife of Sri Narendra Sharma, Director, BISCOMAUN, Patna. All of Bihar State Co-operative Marketing Union Ltd. (BISCOMAUN), Patna, West Gandhi Maidan, Police Station-Gandhi Maidan, Town and District-Patna. -Petitioners. VERSUS 1. The State of Bihar through its Secretary, Co-operative Department, Government of Bihar, Patna. 2. The Hon’ble Minister, Co-operative Department, Government of Bihar, Patna. 3. The Secretary, Co-operative Department, Government of Bihar, Patna. 4. The Registrar, Co-operative Societies, Bihar, Patna. 5. The Deputy Registrar, Co-operative Societies, Patna Division, Patna. 6. Sri P.P. Ojha, Son of name not known, the Managing Director, Bihar State Co-operative Bank Ltd., Patna-cum-Administrator, BISCOMAUN, Patna. 7. Sri Ashok Kumar Jha, Son of name not known, Managing Director, BISCOMAUN, Patna. -Respondents. *********** For the Petitioners : 1. Mr. Y.V. Giri, Sr. Adv. 2. Mr. Ishwari Singh, Adv. 3. Smt. Punita Kumari Singh, Adv. 4. Smt. Kiran Kumari, Adv. 5. Mr. Varun Kumar, Adv. For the State of Bihar : 1. AAG-I 2. Mr. Ritesh Kumar, Asst. counsel to AAG-I. For Respondent No.6 : 1. Mr. Lalit Kishore, Sr. Adv. 2. Mr. Girijesh Kumar, Adv. *********** 05 11.11.2009 In the present writ petition the pleadings being complete with consent of parties the writ petition was heard for final disposal at this stage itself. The present writ petition has been filed by the six petitioners, who are Directors of the Board of Directors of the Apex Co-operative Society, being Bihar State Co-operative Marketing - 2 - Union Limited (BISCOMAUN for brevity). They have challenged the orders dated 09.07.2009 (Annexure-6) and 10.07.2009 (Annexure-7), both being orders passed by the Registrar Co-operative Society. By the first order the petitioners have been disqualified from holding the respective posts as Chairman/Directors in the Board of Directors of BISCOMAUN, allegedly in view of the provisions of Rule 23(1)(d) of the Bihar Co-operative Societies Rule, 1959 and the later by which the Registrar has dissolved the Managing Committee of BISCOMAUN in purported exercise of powers under Section 41(5)(b). In effect, what is under challenge is the unnecessary and unauthorized State intervention in the working of BISCOMAUN, a registered Co-operative Society duly registered under the Bihar Co- operative Societies Act, 1935. At the very outset, I may note that there has been averments and submissions with regard to serious questions of mala fide actions, in fact, but I deem it unnecessary to consider those for the purpose of disposal of this writ petition. The Board of Director of BISCOMAUN consists of the Managing Director, who is State Government nominee, the Chairman and several other Directors most of whom are elected. The total strength of the Board of Directors is 17. Without going into detail facts, this Court prefers to refer the relevant facts for the purpose of disposal of present writ petition only. When the Board of Directors was functioning validly, on 12.01.2009 the Registrar Co-operative Societies, Bihar at Patna - 3 - suspended the Board of Directors/Managing Committee of BISCOMAUN in exercise of powers vested in him under Section 41(1) of the Act for alleged mismanagement and appointed an Administrator. This was of course after notice was issued to the Board of Directors in this regards. This order dated 12.01.2009 was challenged by petitioner no.1 by filing writ petition before this Court being C.W.J.C. No.18290 of 2008. The writ petition was heard at length and by judgment and order dated 11.05.2009 passed by this Court, the same was dismissed. It may be noted at this stage that in the said case this Court commented upon the role of Managing Director, who as stated above, is a government nominee. This Court specifically held that the Managing Director had acted in a manner most unbecoming to him and in flagrant violation of the provisions of the Act, the Rules and by-laws. The Court further held that in any view of the matter his action in the present episode indicates that he is unfit to hold the responsible post of Administrator in the Co-operative Societies like BISCOMAUN. It may be noted that the proviso to Section 41(1) of the Act provides that the suspended Managing Committee if not reinstated earlier shall reassume functioning immediately after six months, which means that if suspension is not revoked earlier then on expiry of six months the suspension would be deemed to be automatically revoked by operation of law. Thus seen, the suspension having been ordered on 12.01.2009, it would automatically be revoked on 11.07.2009, from when the Board of Directors would automatically - 4 - by operation of law reassume charge. I may also note here that once the suspension is revoked the Managing Committee may be superceded for a period not exceeding six months, if it is found that the Managing Committee has not improved its performance. This is so provided in Sub-section(2) of Section 41, which also provides that if action to supercede is not taken within six months from the date of reinstatement of the Committee then that proceeding, that is proceeding for supercession, would be barred. It now appears that being aware of the fact that the suspension would stand revoked on 11.07.2009 and the Board of Directors would reassume charge on 03.07.2009 a surcharge proceedings under Section 40(1)(b) being Surcharge Case No.01 of 2009 was registered before the Deputy Registrar, Co-operative Societies, Patna Division, Patna against the members of the Managing Committee/Board of Directors of BISCOMAUN, who were there in the Committee in the year 2004-05, which included the present six petitioners as well. These surcharge proceedings were initiated based on a purported audit report for the said period on purported charge of giving on lease agreement Revolving Restaurant on lease to one Pawan Kumar Gupta on terms which could have caused anticipated loss of about Rs.3,64,677/- to BISCOMAUN. The notice having been issued, the next date in those surcharge proceedings was fixed as 21.07.2009. The said notice was received by the petitioners on 06.07.2009. On 10.07.2009, the petitioners deposited their share of - 5 - liability under the surcharge proceedings under protest by Bankers cheques drawn in favour of BISCOMAUN. The deposits were before the Deputy Registrar, who had initiated the surcharge proceedings with a request that if in the surcharge proceedings they are not found liable then the amount may be returned to them. Thus, effectively the liability in surcharge proceedings stood liquidated in respect of the six petitioners and only the question whether they were at all liable or not was left to be decided and the proceedings were only of academic interest. On 12.07.2009 on expiry of the suspension period of the Board of Directors the elected Chairman noticed the Managing Director that they had reassumed charge and requested him to convene Board meeting of BISCOMAUN. On the very next date i.e. on 13.07.2009 the petitioners received the impugned order dated 09.07.2009 passed by the Registrar, Co-operative Societies through post whereby the Registrar had declared them disqualified from holding their respective post as Chairman and Director of BISCOMAUN in terms of Rule 23(1)(d) of the Rules, because of pendency of Surcharge Case No.01 of 2009 against them. It may be mentioned here that Rule 23 aforesaid deals with eligibility for election to the Managing Committee and Rule 23(1)(d) provides that no persons shall be eligible for election to the Managing Committee, if a proceeding for surcharge relating to any registered society is pending against him. Rule 24 further provides that a member of the Managing Committee shall cease to hold Office if he incurs any of - 6 - the disqualifications mentioned inter alia in Rule 23. On the next date i.e. on 14.07.2009 the Managing Director of BISCOMAUN informed the petitioners that by another order dated 10.07.2009 passed by the Registrar, Co-operative Societies in purported exercise of powers under Section 41(5)(b) of the Act had dissolved the Managing Committee because out of 17 members of the Managing Committee 12 seats became vacant which included 6 seats in relation to the six petitioners as well. The provision of Section 41(5)(b) is that if half of the total numbers of seats of the Managing Committee become vacant the Managing Committee may be dissolved by the Registrar. Thus seen, it would be apparent that if six petitioners were not disqualified in terms of Rule 23 read with Rule 24 then total number of vacant seats would be only six. If that were so, the Committee could not have been dissolved. This is the second order that is under challenge. It may be noted here that in the surcharge proceedings being Surcharge Case No.01 of 2009, as indicated above, the petitioners appeared and filed their show cause. After hearing the parties at length, the surcharge proceedings based on the audit report were dropped by orders of the Deputy Registrar dated 30.09.2009, holding inter alia that the charge of anticipated loss was speculative and hypothetical. It may also be stated here that while the said surcharge proceeding was pending another surcharge proceeding was started being Surcharge Case No.02 of 2009, this time for anticipated loss of - 7 - about Rs.33.59 lacs, inter alia on the basis that the lease agreement for the Revolving Restaurant, which had never became operative had not been set aside and as such BISCOMAUN had suffered the said anticipated loss. After hearing, even these proceedings had been dropped by the Deputy Registrar, Co-operative Societies by his order dated 14.09.2009. The fact now is that so far as the petitioners are concerned, there is no proceeding against them and they are not disqualified any more. Yet, neither the Board of Directors is being reinstated nor being permitted to function or the supercession being revoked. It may also be noted here that in course of arguments it was pointed out that apparently being aggrieved by the order dated 30.09.2009 passed by the Deputy Registrar, Co-operative Societies in Surcharge Case No.01 of 2009, the Auditor has preferred a revision before the Registrar, Co-operative Societies purporting to be a revision under Rule 56 of the Act, which is numbered as Revision Case No.118 of 2009, which has been admitted on 14.10.2009 and notices issued on 22.10.2009. To these proceedings, I will refer later. In view of the facts aforesaid, Mr. Y.V. Giri, learned Senior counsel appearing on behalf of the petitioners in support of the writ petition has raised apart from questions of mala fide, which I do not intend to go into, legal issues. Firstly, he has submitted that as the consequence of initiation of surcharge proceedings are grave and far reaching the registration and initiation of proceedings must be with prior notice and hearing. This is important because if the provisions - 8 - of Rule 23 and Rule 24 are strictly interpreted then however ridiculous or mala fide the proceedings may be, once they are merely registered, an elected person in a Co-operative becomes disqualified to be an elected member which is very drastic consequences. For this, reliance has been placed on judgment of this Court in the case of Bashist Muni Singh Vs. The Joint Registrar, Co-operative Societies, Patna being C.W.J.C. No.4963 of 1987 decided on 10.10.1988 as well as the decision of the Apex Court in the case of S.L. Kapoor Vs. Jagmohan & Ors. since reported in AIR 1981 SC 136. Mr. Giri has secondly submitted that even otherwise the moment surcharge proceedings were initiated and it came to the knowledge of the petitioners under protest they paid the amount, thus, the surcharge proceedings lost its efficacy for the purpose of disqualification and was only of academic interest. The payment as made on 10th July 2009 is not in dispute. In any case, their submission is that the surcharge proceedings having been dropped as misconceived it erases the disability ab initio and if that be so then automatically the order of supercession and appointment of Administrator as done by order dated 10.07.2009 by the Registrar, Co-operative Societies automatically vanishes into thin air. Mr. Lalit Kishore, learned Senior counsel and AAG-III, who argued in support of the actions of the respondents submitted on the strength of two Bench decisions of this Court in the case of Jugal Kishore Sinha Vs. the Registrar, Co-operatiave Societies, Bihar since reported in 1960 BLJR 49 and in the case of Mohan Mishra & - 9 - Anr. Vs. The State of Bihar & Ors. since reported in 1996(2) PLJR 171 that no sooner surcharge proceedings were initiated members became automatically disqualified and the disqualification would continue so long as the proceedings were pending. He further submitted that neither the Act nor the Rule provides for any hearing before initiating the proceedings for surcharge and none can be read in by this Court. His last submission is that in any view of the matter a revision application having been admitted by the Registrar, Co- operative Societies against the order dropping of the surcharge proceedings, as filed by the Auditor, it would be deemed to be a continuance of the surcharge proceedings, which would automatically get revived and would automatically disqualify the petitioners. It is the correctness and consequence of these submissions that have to be decided in the present proceedings by this Court, in view of the facts as noted above, regards which there is no dispute. First, considering the first submission of Mr. Giri, learned Senior counsel for the petitioners, one has to first kept in mind that we are dealing with Co-operative law and Co-operative democracy where the management is supposed to be in the hands of elected representatives and as such undue interference by outside authorities must be restricted to minimal and only in exceptional circumstances absolutely necessary. It is for safeguarding the Co-operative that various provisions have been made by the legislature in the Acts and the Rules framed thereunder, whereby State can intervene in the functioning of a Co-operative. Keeping these basic facts in mind let - 10 - us now see the effect of Rule 23. Rule 23 of the Rules provides for eligibility of a person to get elected to the Managing Committee of a Co-operative, which inter alia provides that if proceeding for surcharge relating to any Co-operative is pending against a person then he is not eligible to contest the election to the Managing Committee. Here the matter to be noted is that when he seeks election a surcharge proceeding is already pending from before he seeks election. Secondly, by virtue of Sub-Rule 2 to Rule 24 if a person suffers disqualification as mentioned in Rule 23 then even if he has already been elected to the Managing Committee in a democratic process he shall cease to hold the office. Thus, if a proceeding of surcharge is initiated the consequence is that so long as the proceeding remains pending which is not entirely in his hands he remains to be disqualified to be an elected member of the Managing Committee even though he may enjoy the confidence of the Co- operative. This would also be so if the surcharge proceedings were wholly mala fide, fictitious or frivolous as the law makes no exception. He can only come back once the proceedings are terminated either by way of liquidating the surcharge or dropping of the proceedings. Thus seen, the consequence of the very initiation of the proceedings lead to disastrous consequences where the very expectation to continue to function as an elected members of the Managing Committee stands terminated/suspended. This is a grave civil consequence, as has been held by the Apex Court in the case of S.L. Kapoor Vs. Jagmohan (supra). There the Municipal - 11 - Commissioner had objected to supercession of the Municipal Committee which was done without any show cause. It was argued on behalf of the State that the statute did not provide a hearing before supercession and as such no hearing was required to be given and secondly they were merely elected body holding no civil post and receiving no remuneration and as such could not plead adverse civil consequences. Both these arguments were specifically dealt with and rejected. It was held as a matter of law and as part of requirement of Article 14 of the Constitution that before any person or anybody is visited with civil consequences he must be heard. He cannot be condemned unheard. Secondly, mere expectation to carry on for a full elected term, termination of which was enough to attract adverse civil consequences. Thus seen, in my view, a preliminary hearing whether to register and initiate a surcharge proceeding or not becomes all the more necessary. This can be illustrated simply. A person on basis of forged papers moves the Registrar showing that an elected member of the Managing Committee is in debt or is liable for culpable malfeasance. To test the correctness of the claim a surcharge proceeding is registered. Notices are issued to the alleged erring members. Mere issuance of notice is initiation of proceedings for surcharge and proceedings would be deemed to be pending and that would immediately disqualify the member. The proceedings with all ingenuity can be kept pending for a long time depriving the elected member of his right to be the member of the Managing Committee only in the end to be totally exonerated because - 12 - proceedings were based on forged and fabricated documents. The injustice done to the elected member cannot be undone or compensated in any manner. The will of electorate, who elected him, gets throttled without reason. That would be of grave consequence and severe results. Can it still be said that a preliminary hearing is not in order in such a case, where mere registration of a surcharge proceeding leads to disqualification. My answer is that a preliminary hearing to register or not to register a surcharge proceeding is a must otherwise the provisions are inherently open to abuse. It is well settled position in law that the more drastic the consequences of the legal provisions the greater security and cautions approach is to be adopted for its implementation. Equally well settled is the position in law in view of judgments of the Apex Court including S.L. Kapoor Vs. Jagmohan (supra) that wherever adverse civil consequences flow a pre hearing is a must which has now been taken to be requirement of Article-14 of the Constitution as well. This Court in the case of Bashist Muni Singh Vs. the Joint Registrar, Co-operative Societies, Patna (supra) has apparently taken a similar view of the matter. Coming to the facts of the present case, the need for a preliminary hearing is clearly exemplified. But for the proceedings which had ultimately been found to be misconceived the petitioners could not have been disqualified. The consequence of their disqualification en mass led to the dissolution of the Managing Committee itself. The consequences were so grave and drastic, yet the Court is being asked to hold that notwithstanding the grave - 13 - consequence the requirement of preliminary hearing before initiating any proceeding for surcharge is not the requirement of law. The argument is not acceptable, for the reasons as given above. Now, we come to the decisions as relied on by the State. In the first case that is Jugal Kishore Sinha Vs. the Registrar, Co- operative Societies, Bihar, (supra) though the judgment speaks of automatic disqualification no sooner surcharge proceedings are registered, in my view, the judgment is not an authority for that proposition. In that case it was not disputed that a surcharge proceedings were initiated and which had culminated in an order of surcharge against the petitioner. The appeal, the revision, the review and the challenge thereto in the writ petition were all unsuccessful. The dues as determined remained unpaid. It is at that stage that the Managing Director of BISCOMAUN declared the petitioners to be disqualified from holding the post of Director, BISCOMAUN. Thus seen, there was no proceeding that was initiated and during pendency of the proceeding the person was disqualified, merely because, the proceedings had been initiated. The proceedings had culminated with final orders long before. In this connection, I may refer to the judgment of the Apex Court in the case of State of Orissa Vs. Sudhanshu Shekhar Misra & Ors. since reported in AIR 1968 SC 647, wherein their Lordships have referred to the often quoted judgment of Lord Chancellor Hulsburry in the case of Quinn Lethem 1901 appeal cases 495, wherein it was held that every judgment must be read as applicable to the particular facts proved or assumed to be - 14 - proved since the generality of expression which may be found there are not intended to be exposition of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found. A case is only an authority for what it actually decides which cannot be quoted for the proposition that seem to follow logically from it. It is not profitable task to extract a sentence here and there from a judgment and to build upon it. In the case of Jugal Kishore Sinha (supra) the issue was not whether mere registration of a surcharge proceedings would disqualify a person. Now, I may refer to the second decision being decision of this Court as relied on by the respondents being the case of Mohan Mishra and another (supra). This case dealt with the validity of by-laws of a Co- operative Society. The Court was required to consider whether there was any conflict between the Rules and the by-laws while dealing with that there were observations which were not really necessary for disposal of case with regard to the ambit of Rule 23. Thus, the said judgment is also not in authority for the proposition as canvassed. In any view of the matter, the question regarding preliminary hearing was neither raised nor considered in those cases. Be that as it may, as I have already held that a preliminary hearing was a necessity in such matters and that not having been given, the proceedings and the consequential disqualification stood vitiated. That has now become academic, in view of total exoneration of the charge of surcharge in both the surcharge proceedings, apart from the fact that the amount of surcharge in the first proceedings - 15 - was totally paid up as well. To this Court it appears that because the amount of surcharge was paid up in the first proceeding in order to keep the petitioners out the second proceeding for a substantial amount was registered, but unfortunately that proceeding also collapsed. Thus, there being no surcharge proceeding pending, the petitioners do not suffer from any disqualification and in law cannot be held to be disqualified. The exoneration wipes out effect of the proceedings from the very beginning. This would automatically lead to cessation of order of disqualification and dissolution of the Managing Committee. But, before concluding, I must in fairness to Mr. Lalit Kishore, learned Senior counsel for the respondents consider yet another argument against dropping of the surcharge proceedings. The Auditor has filed a revision before the Registrar which has been admitted and as such he submitted that on general principles the revision having been admitted, it would be deemed that the surcharge proceedings continue. I am afraid that the argument is noted only to be rejected for various reasons. Firstly, in view of the fact that the proceedings were dropped it wipes out the very initiation, as such there was no proceeding left at all. The proceedings would revive only if and when the order is set aside