IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC MONDAY, THE 13TH JULY 2009 / 22ND ASHADHA 1931 WP(C).No. 4564 of 2009(R) --------------------------------------- PETITIONER(S): -------------------------- JOSEPH.K.A, PRESIDENT,(NOW UNDER SUPERSESSION)NEDIYANGA SERVICE CO-OPERATIVE BANK LTD.NO.LL 84,P.O.CHEMPANTHOTTY, KANNUR DISTRICT. BY ADVS. MR.M.A.FIROZ, MR.V.C.JAMES, MR.GEORGE MECHERIL. RESPONDENT(S): ---------------------------- 1. THE JOINT REGISTRAR (GENERAL)OF CO-OPERATIVE SOCIETIES, KANNUR. 2. K.P.THANKACHAN, ALAKKODE UNIT INSPECTOR, OFFICE OF ASST.REGISTRAR OF CO-OPERATIVE SOCIETIES, TALIPARAMBA AND ADMINISTRATOR,NEDIYENGA SERVICE CO-OPERATIVE BANK, CHEMPAMTHOTTY, P.O.CHEMPAMTHOTTY, KANNUR DISTRICT. 3. THE STATE OF KERALA,REPRESENTED BY ITS SECRETARY TO GOVERNMENT, CO-OPERATION DEPARTMENT, SECRETARIAT,THIRUVANANTHAPURAM. R1 & R3 BY GOVERNMENT PLEADER MR.K.C.SANTHOSHKUMAR R2 BY ADV. MR.P.C.SASIDHARAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13/07/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss WPC.NO.4564/2009 R APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF THE NOTICE DTD. 12/12/2008 ISSUED BY 1ST RESPONDENT. P2: COPY OF THE JUDGMENT DTD. 19/12/2008 IN WPC.NO.37881/08. P3: COPY OF THE RELEVANT PORTION OF THE ENQUIRY REPORT UNDER SECTION 66 OF THE ACT. P4: COPY OF THE OBJECTION FILED AGAINST EXT.P1 NOTICE DTD. 9/1/2009. P5: COPY OF THE ORDER DTD. 2/2/2009 IN WPC.NO.37881/08. P6: COPY OF JUDGMENT DTD. 2/2/2009 IN WPC.NO.1825/09. P7: COPY OF THE PROCEEDINGS DTD. 2/2/2009 OF THE FIRST RESPONDENT. P8: COPY OF THE JUDGMENT DTD. 6/08/2004 IN W.A.NO.1363/04. P9: COPY OF THE JUDGMENT DTD. 15/12/2006 IN WPC.NO.33288 OF 2006. P10: COPY OF THE JUDGMENT DTD. 10/09/2007 IN WPC.NO.15311/07. P11: COPY OF THE REQUEST FOR CANCELLATION OF THE PROMOTION DTD. 14/03/2007. P12: COPY OF THE REQUEST DTD. 11/06/07 SUBMITTED BY THOMAS ANTONY TO THE PRESIDENT NEDIYANGA SERVICE CO-OP.BANK. P13: COPY OF COMMUNICATION DTD. 16/08/2006 OF THE JOINT REGISTRAR. P14: COPY OF THE REPORT DTD. 20/09/2006 OF THE SOCIETY. P15: COPY OF THE RESOLUTION NO.4 DTD. 27/10/06 OF THE BOARD OF DIRECTORS OF THE SOCIETY ALONG WITH THE COVERING LETTER DTD. 27/10/06. P16: COPY OF THE PROCEEDINGS NO.8118/06/AEL/K.DIS. DTD. 20/02/2007. P17: COPY OF THE COMMUNICATION ISSUED TO K.P.GANGADHARAN IMPOSING PUNISHMENT DTD. 28/10/06. P18: COPY OF THE APPOINTMENT ORDER ISSUED ON 7/01/2006. Kss ..2/- ....2.... WPC.NO.4564/2009 R P19: COPY OF THE COMMUNICATION DTD. 4/03/2008 DIRECTING THE EMPLOYEE TO REFUND THE EXCESS SALARY DRAWN FOR THE PERIOD FROM 1/06 TO 3/06. P20: COPY OF THE RESOLUTION NO.9 DTD. 10/10/1007 OF THE SOCIETY. P21: COPY OF THE RESOLUTION NO.5 DTD. 28/10/2005 AND ENDORSING APPROVAL OF THE SAME ON 27/12/05. RESPONDENT'S EXHIBITS: N I L /TRUE COPY/ P.A.TO JUDGE Kss ANTONY DOMINIC,J. --------------------- W.P.(C).No.4564 OF 2009 ------------------------ Dated this the 13th day of July, 2009. JUDGMENT The petitioner was the President of Nediyenga Service Co-operative Bank in Kannur District. 2. Pursuant to an election that was held in March, 2006, the Managing Committee of the Society assumed office on 12/03/2006,and its term is to expire on 11/3/2011. While continuing in office, they were issued Ext.P1 show cause notice calling upon them to show cause why the Committee shall not be superseded under Section 32 of The Kerala Co- operative Societies Act(hereinafter referred to as'the Act' for short). Ext.P1 show cause notice was challenged before the Court in WP(C) No.37881/2008, and the writ petition was disposed of by Ext.P2 judgment rendered on 19/12/2008 WP(c).No.4564/09 2 making it clear that the petitioner will be entitled to obtain copy of the report under Section 66, based on which Ext.P1 was issued, file objections and that the matter will be considered in the light of the materials available. 3. It is stated that pursuant to the judgment, they were given a copy of the report under Section 66 of the Act relied on in Ext.P1, an extract of which is Ext.P3. The petitioner, thereafter filed his objections to Ext.P1, a copy of which is Ext.P4. Parties were heard by the Joint Registrar. While orders were awaited, the petitioner submits that on an apprehension that without passing orders on Ext.P1 or serving copy, the Committee will be superseded, they filed WP(C) No.1825/2009 before this Court. That writ petition was disposed of by Ext.P6 judgment dated 02/02/2009 recording the submission of the learned Government Pleader that orders as apprehended were not passed, and without prejudice to the contentions raised. The petitioner submits that on 02/02/2009 itself, Ext.P7 order was issued by the 1st respondent exercising his powers under WP(c).No.4564/09 3 Section 32 of the Act, and superseding the Committee, of which the petitioner was the President and that accordingly, the 2nd respondent took over charge as the Administrator of the Society on 06/02/2009. It is thereafter that on 09/02/2009 this writ petition has been filed seeking to quash Ext.P7, and for directions enabling the Committee to continue in office. 4. The petitioner submits that Ext.P1 show cause notice contained 19 allegations, out of which, 11 are in relation to incidents which took place prior to their assuming office. Relying on Ext.P8 judgment of the Division Bench in W.A.No.1363/2004, it is contended that the Committee elected to the Office of a Society cannot be superseded for misconducts committed by a previous Committee. In so far as charge numbers 7, 9, 10, 11, 13 & 14 pertaining to the period subsequent to their assuming office are concerned, the learned counsel for the petitioner contends that the findings arrived at in Ext.P7 are absolutely perverse and, at any rate, do WP(c).No.4564/09 4 not justify the extreme step of supersession of elected Committee of the Society. Elaborating on this, the learned counsel contends that though the statute confers power of supersession under Section 32 thereof, the said power is to be exercised only in rarest of rare cases against a Society. Reliance was placed on the decisions of this Court in A.K.Francis v. Joint Registrar (1990(2) KLT 470), Govindan Kutty v. Viyyur Service Co-op. Bank (1990(1) KLT 513), Rajagopalan Nair v. State of Kerala (1995(2) KLT 184), Ellakkal Service Co-operative Bank v. State of Kerala (1997(2) KLT 85) and the Apex Court judgment in Surinder Nath Dewan v. State of Haryana & Others (1994 Supp. (3) SCC 135). 5. The learned counsel also contended that after the receipt of Ext.P3 report, the 1st respondent did not pass any order or issue directions as contemplated under Section 66(5) of the Kerala Co-operative Societies Act (hereinafter referred to as the Act for short). It is stated that in the absence of such an order, there cannot be a case of disobedience to WP(c).No.4564/09 5 comply with any lawful order or direction or default in the performance of the duties as contemplated under Section 32 (1) (a) of the Act to justifying Ext.P7 order. He also points out that along with Ext.P3, the balance sheet of the Society was not enclosed and therefore, there is violation of Rule 66(5) of the Rules. In this context reliance was placed on the decision of this Court in Ellakkal Service Co-operative Bank v. State of Kerala (1997(2) KLT 85). 6. The learned counsel also contended that though the Joint Registrar had visited the Society on 11/12/2008, he did not prepare any report, based on which Ext.P1 show cause notice was issued on 12/12/2008. According to the learned counsel, Ext.P1 show cause notice was already prepared as early as on 06/12/2008 itself and in order to legitimise the same, the visit was conducted and the notice already kept ready was issued with the date 12/12/2008. Referring to the judgments of this Court in Jose Kuttiyani and Others v. The Registrar of Co-operative Societies & Others (AIR 1982 Kerala WP(c).No.4564/09 6 12) and Sahadevan v. Padmanabhan (2004(1) KLT 192), it was argued that the process of consultation was turned into an empty formality in as much as the materials which are required to be forwarded to the District Co-operative Bank and the Circle Co-operative Union were not forwarded. He further argued that as is seen from Ext.P7, the 1st respondent did not await for the response of the District CO-operative Bank or the Circle Co-operative Union, and as a result thereof, there has not been any consultation as contemplated under Section 32 (2) of the Act. 7. The learned Government Pleader submitted that though 11 out of the 19 allegations in the show cause notice pertain to a period prior to the present committee assumed office, instructions were issued by the 1st respondent requiring the Committee to rectify the defects and that those instructions were not complied with. It is stated that this refusal reflects a case of willful disobedience of the lawful orders issued by the departmental authorities, and in such WP(c).No.4564/09 7 cases, the 1st respondent was justified in invoking his powers under Section 32 of the Act. In so far as the consultation process is concerned, referring to Ext.P7 order itself, it is submitted that the Joint Registrar has stated that the documents were forwarded to the District Co-operative Bank and to the Circle Co-operative Union, which were sufficient to enable them to convey their views in the matter. According to the learned Government Pleader, despite having received these documents, the consultees did not respond and that in such circumstances, the 1st respondent was perfectly justified in proceeding with the matter. The learned Government Pleader also invited my attention to Section 32(3) of the Act and contended that if in certain circumstances, the very consultation itself could be dispensed with, the authority could not have been expected to wait endlessly for the response of the consultees. According to the learned Government Pleader, each one of the allegations pertaining to the period after the petitioner assumed office, itself are good grounds for invoking WP(c).No.4564/09 8 Section 32 of the Act. 8. On behalf of the 2nd respondent, Sri. P.C.Sasidhran contended that in Ext.P1 judgment, this Court while directing to furnish copy of the report under Sec.66 of the Act to the petitioner, directed that it was open to him to file objections. It is contended that despite this, objection was not filed and as a result thereof, the findings in the report have become final. It is stated that in such circumstances, proceedings resulting in Ext.P1 are only consequential in nature, and that in such a factual background, this Court should not interfere with the impugned proceedings. It was also contended that this Court exercising power of judicial review, should not sit as an appellate Court and examine the merits of the order. It is also his contention that in a case of willful disobedience or failure to comply with a lawful order as contemplated under Section 32(1)(b) of the Act, the requirement of persistent default or negligence provided in sub section 32(1)(a) need not be present for passing orders under Section 32 of the Act. He WP(c).No.4564/09 9 also made reference to the judgment of this Court in State of Kerala v. Sudarsanan (1997(2) KLT 522), where this Court explained the nature of the power under Section 32 of the Act. 9. I have considered the submissions made. 10. As already noticed, Ext.P1 show cause notice and Ext.P7 order under Section 32, contain 19 allegations. Allegation Nos.2, 7 to 15 & 19 pertain to the period prior to 12/03/2006 when the Committee assumed Office. Allegations Nos.1, 3 to 6, and 16 to 18 relate to the period after the petitioner assumed office. In so far as allegation No.18 is concerned, the explanation furnished in Ext.P4 has been accepted in Ext.P7 order. Allegation No.7 is to the effect that by order dated 20/02/2007, the Bank was directed to take action for recovery of the amount due from a defaulter, and though notice was given on 27/07/2007, the Committee did not take any further action in the matter. Therefore, the allegation is that the Committee disobeyed the direction issued on 20/02/2007. Similarly, in respect of charge Nos.9, WP(c).No.4564/09 10 10, 11, 13 & 14 also, a reading of Exts.P1 & P7 shows that the allegation is that the Committee did not comply with the direction issued by the 1st respondent on 16/08/2006. In so far as the remaining five charges, charge Nos.2,8,12,15 and 19, pertaining to the period prior to 12/03/2006 are concerned, neither Ext.P1 nor Ext.P7 states that any direction was issued. 11. In so far as the question whether the Committee in office could be superseded for the irregularities committed by a previous committee is concerned, as rightly pointed out by the learned counsel for the petitioner, that issue is answered by a Division Bench of this Court in the judgment in K.V.Mohanan v. State of Kerala & Others (Writ Appeal No.1363/2004), a copy of which has been produced as Ext.P8, where, it has been held that the Committee of the Co- operative Society cannot be superseded for the defaults and irregularities alleged to have been committed by a previous Committee. Then what remains is what could be WP(c).No.4564/09 11 consequences of the alleged non-compliance with the directions issued by the 1st respondent on 16/08/2006 and 20/02/2006 pertaining to charge Nos.9, 10, 11, 13, 14 & 7 respectively. I shall deal with this issue at a later stage of this judgment. 12. The charges pertaining to the period subsequent to the assumption of the Office by the Committee led by the petitioner are charge Nos.1, 3 to 6, 16, 17 & 18. Charge No.1 is that the Joint Registrar by order dated 28/11/2006 directed that an accused in a vigilance case be placed under suspension, and that the Committee did not comply with the said direction. It is stated that without doing so, the Committee obtained legal opinion and incurred an unnecessary expenditure of Rs.2,000/-. The answer of the Committee is that the accused in the vigilance case mentioned in charge No.1 had filed WP(C) No.33288/2006 before this Court, which was disposed of by Ext.P9 judgment. In that judgment, this Court directed that the Bank shall take an WP(c).No.4564/09 12 independent decision uninfluenced by the direction issued by the 1st respondent to place the employee under suspension. It is stated in Ext.P4 reply that in pursuance to the aforesaid judgment, in order to consider the matter and pass an order, which is sustainable in law, the Committee sought legal opinion, and in the light of the legal opinion, passed a resolution not to place the employee under suspension. It is stated that the power to place an employee under suspension is a power exclusively vested on the disciplinary authority in terms of Rule 198(6) of the Rules. In Ext.P7, the 1st respondent took the view that the attitude adopted by the Committee is a curious one and on that basis, the explanation has been rejected. 13. Having considered the allegations in Ext.P1 notice in the light of Ext.P4 reply and the findings in Ext.P7 order, I am inclined to think that the 1st respondent was not justified in taking the view that he has taken in Ext.P7. When the 1st respondent ordered to place the employee under suspension, WP(c).No.4564/09 13 that was challenged before this Court, and this Court in Ext.P9 judgment directed the disciplinary authority to take an independent decision uninfluenced by the directions of the 1st respondent. The disciplinary authority wanted to obtain legal advice in the matter and the bona fides of that decision cannot also be faulted. Legal advice can only be on payment fee to the counsel. Accordingly, the matter was considered in the light of the advice received and resolution was passed not to place the employee under suspension. There is nothing irregular in such a decision and if at all, the Joint Registrar had found that the decision is vitiated for any reason, it was always open to the Joint Registrar to have exercised his power under Rule 176 of the Rules. Therefore, the first charge levelled against the petitioner and the findings in Ext.P7 are totally unsustainable. 14. Charge No.3 is that the Committee declined to accord sanction to prosecute certain employees, who were involved in a vigilance case. It is stated that for this purpose WP(c).No.4564/09 14 again legal opinion was obtained and expenditure was incurred and that at a later point of time, sanction was accorded. The crux of the allegation is that in the process, the Bank incurred unnecessary expenditure of Rs.3,750/- towards legal expenses. The answer of the petitioner in Ext.P4 reply submitted is that it being a legal issue, they sought legal opinion, and that it was in the light of the legal opinion that the issue was considered and a decision was taken. It is stated that the expenditure shown to have incurred by the Bank was actually incurred and that the decision of the Bank was not criticized even by the Vigilance Director. In my view, this explanation ought to have been accepted, especially when there is no case that any amount has been misappropriated. 15. Charge No.4 in Ext.P4 show cause notice is that when one of the directors was disqualified on the ground of his being a defaulter, he challenged the proceedings against him before this Court in WP(C) No.15311/2007, impleading the Bank also as a respondent. It is stated that the Managing WP(c).No.4564/09 15 Committee, in its meeting held on 08/06/2007, presided over by the alleged defaulter himself resolved to unnecessarily engage a counsel to appear on behalf of the Bank, and that in that process, an unnecessary expenditure of Rs.5,000/- was incurred. Ext.P10 in this writ petition is the judgment in WP(C) No.15311/2007 filed by the alleged defaulter, which shows that a counsel had appeared for the Bank. In Ext.P4 reply, it is stated that when notice was received from this Court, finding that the Bank was a party in the writ petition, the Bank thought that it is only appropriate that it should be represented by a counsel. They make reference to Ext.P10 judgment and state that the fact that the Bank or its lawyer did not collude with the petitioner therein is evident from the judgment itself, since the writ petition was dismissed by this Court. However, in Ext.P7, the order passed under Section 32, the 1st respondent took the view that the Bank being only a formal party, need not have appeared in the case and could have avoided the legal expenditure. WP(c).No.4564/09 16 16. In my view, if the Bank was a party in a writ petition, and irrespective of the stakes involved, it has decided that it should be represented, there is nothing improper about that decision. This is all the more so, as a responsible litigant, the bank is expected to appear before this Court when notice is received. Even if it is taken that the decision of the Bank was an unwise one, that does not mean that such a decision warrants any consequence as provided in Section 32, nor can the payment made to the counsel be said to be one attracting Section 32(1)(c) of the Act. 17. Charge No.5 in Ext.P1 show cause notice is that the Bank did not collect tax receipts at the time of disbursing loans contrary to the direction issued by the District Co- operative Bank. In Ext.P4 reply filed, it has been stated by the petitioner that in the District Level Review Meeting, when it was found that due to the insistence of the tax receipts, the volume of loan transaction has been reduced, it was decided to dispense with tax receipts for renewal of the loan. It is WP(c).No.4564/09 17 stated that in compliance with the above, the Committee resolved to dispense with production of tax receipts for loan renewals for the period from 10/10/2007 to 31/03/2008 , and that tax receipts have been insisted as and when new loans were granted. A reading of Ext.P7 shows that the aforesaid contention urged in Ext.P4 has not been adverted to by the 1st respondent while concluding this issue against the petitioner. Therefore, the finding on Charge No.5 cannot be sustained. 18. Charge No.6 is that default was committed by the Committee in taking steps for the execution of the arbitration awards that the Bank had obtained. In Ext.P4 the answer of the petitioner is that in several cases, the 1st respondent himself had issued orders stalling execution proceedings. It is the case of the Bank that even otherwise, in cases where execution proceedings have been filed, as a result of inordinate delay, realisation of dues was getting delayed. It is stated that therefore the Bank had taken a conscious decision WP(c).No.4564/09 18 to persuade the parties to settle the liabilities on amicable terms, and that in that process, got settled 262 such cases. In Ext.P7, this issue has been found against the petitioner and it has been held that if this situation continues, the Bank will soon be deep in red. The accumulated loss of the Bank is 2.83 crores, and the total defaulted amounts to be realised is Rs.3.33 crores. In this back ground, the finding of the 1st respondent is that execution proceedings have been initiated only in respect of 10% of such cases and that there has been lapses on the part of the committee. Having regard to these facts, I cannot find fault with the 1st respondent, in the view that he has taken. 19. Charge No.16 is that Smt.M.K.Narayani, the Secretary of the Bank had given statement before the Enquiry Officer that she was prevented from discharging her duties and that it was therefore that she opted to quit from service. It is also stated that Shri.Thomas Antony also had refused to take charge as the Secretary for similar reasons. In Ext.P7, this WP(c).No.4564/09 19 issue also has been concluded against the petitioner. The learned counsel for the petitioner referred me to Exts.P11 & P13 and also Ext.P7 reply. Exts.P11 & P12 show that Shri.Thomas Antony himself had submitted his unwillingness to assume charge as the Secretary, and he has requested to avoid him due to personal reasons. In Ext.P4 reply, it is stated that Smt.Narayani requested that she be relieved on health reasons, and a copy of her letter was also enclosed to Ext.P4 as Annexure IV. Similarly, explanation is also offered in regard to Shri.Thomas Antony. A reading of Ext.P7 shows that none of these aspects have been dealt with and on the other hand, the 1st respondent has concluded the issue against the petitioner. Therefore, finding on Charge No.16 cannot be sustained, for not considering the explanation in Ext.P4 and the materials relied on by the petitioner. 20. Charge No.17 is that due to dereliction of duties to the Society deposits were not renewed in time and hence the Bank lost Rs.29,426/- towards interest. This charge has been WP(c).No.4564/09 20 answered by the petitioner in Ext.P4, that it was due to the dereliction of duty of two of its employees that this has happened and that the loss is being recovered from the concerned employees and that disciplinary action has been initiated against them. In Ext.P7, the finding is that this loss had occurred due to the dereliction of duties of the committee. This finding of the 1st respondent also cannot be sustained for the reason that while concluding this issue against the petitioner, the explanation offered by the petitioner has not been considered. Therefore, except the finding on charge No.6, findings of the 1st respondent on the aforesaid other charges are all perverse. 21. The other question which requires to be considered is whether in the facts of this case, an order under Section 32 of the Act is justified. A reading of the various provisions in the Act and the Rules show that the legislative intent is that the Co-operative Societies should function in a democratic manner with an elected committee at its helm of affairs. WP(c).No.4564/09 21 However, power has also been conferred on the statutory authorities to supersede the elected committee and entrust the administration to a Administrator, as a corrective measure and specific grounds have been provided in the Statute for exercising such power of supersession. Exercising the nature of the power under section 32 of the Act, this court in Govindan Kutty V. Viyyur Service Co-operative Bank (1990(1) KLT 513), held as follows; The power u/s.32 of the Act