SCA/139/0008 1 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13900 of 2008 For Approval and Signature: HONOURABLE MR. JUSTICE MOHIT S. SHAH AND HONOURABLE MS.JUSTICE H.N.DEVANI ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================= GUJARAT STATE CO-OPERATIVE BANK LTD & 1 - Petitioner(s) Versus STATE OF GUJARAT & 14 - Respondent(s) ================================================= Appearance : MR MIHIR JOSHI, SR. ADVOCATE WITH MR SAURABH G AMIN for Petitioner(s) : 1 - 2. MS NISHA PARIKH, AGP for Respondent Nos.1 and 2. MR KAMAL TRIVEDI, ADVOCATE GENERAL with MS SANGITA VISHEN, AGP for respondent No.3. None for Respondent(s) : 4 - 6,8 - 9. MR TUSHAR MEHTA, SR.ADVOCATE for MR VIRAL K SHAH for for Respondent(s) : 7,10 - 15. ================================================= CORAM : HONOURABLE MR. JUSTICE MOHIT S. SHAH and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 08/12/2008 ORAL JUDGMENT (Per : HONOURABLE MR. JUSTICE MOHIT S. SHAH) This petition under Article 226 of the Constitution challenges the Voters' List prepared for the purpose of elections to the Board of Directors of petitioner - Gujarat State Co-operative Bank Ltd., under Bye-law 26(a), in so far as the said list includes respondents Nos.6 and 7 - Junagadh District Co-operative Bank Ltd., and the SCA/139/0008 2 JUDGMENT Baroda District Co-operative Bank Ltd., respectively and also challenges the inclusion therein of respondents Nos.11 to 15 which are other co-operative Societies falling under Bye-law No. 26(c) of the Bye-laws of the petitioner-Bank which is a State level Co- operative Bank. The challenge against inclusion of Co-operative Societies in two separate lists of voters is on the common ground that they have committed defaults in repayment of their dues and are, therefore, disqualified under Bye-law No.27A from participating in the elections to the Board of Directors of the petitioner-Bank. 2.1 As far as respondents Nos.6 and 7 – Junagadh District Co-operative Bank Ltd., and Baroda District Co-operative Bank Ltd., are concerned, Mr. Mihir Joshi, learned Senior Counsel for the petitioners states that at this stage, the petitioners do not press the challenge to inclusion of these District Co-operative Banks in the Voters' List and the petitioners reserve their right to take appropriate action as available under law. 2.2 As far as respondent No.13 Society is concerned, according to the finding given in the impugned order dated 27.11.2008, the said Society has already entered into a one time settlement with its creditor. Although there is some dispute as to whether the terms of the settlement are complied with or not, but the Election Officer has given finding that respondent No.13 Society cannot be considered as a defaulter. Hence, we do not propose to entertain the challenge to inclusion of Respondent No.13 in the Voters' List under Bye-law No.26(c). It will be open to any aggrieved party to raise the challenge before the appropriate forum after the results of the elections are declared. 2.3 This petition is, thus, confined to the petitioners' challenge to inclusion of respondents Nos.11, 12, 14 and 15 in the list of Voters for the constituency of “ industrial co-operative SCA/139/0008 3 JUDGMENT Societies and other co-operative societies” under Bye-law No.26(c) of the petitioner. 3. By the impugned orders dated 24/27.11.2008, the Election Officer has held that as the said four co-operative societies are defaulters of other co-operative societies and not of the petitioner-Bank, they cannot be disqualified from participating in the elections to the Board of Directors of the petitioner - Bank. Learned Counsel Mr. Tushar Mehta for the said four respondent co- operative societies has also not disputed the fact that they are defaulters of certain other co-operative societies. However, the stand of the said four societies and of the Election Officer is that only the defaulters of the petitioners - Bank are disqualified from participating in the elections of the Directors of the petitioner - Bank. Since the question was decided by the Election Officer as a pure question of law, and the learned Counsel for the parties have also argued the same as a pure question of law, we entertain this petition having regard to the decisions of the Apex Court referred to hereinafter and also having regard to the statutory order dated 1.6.2005 of the Registrar of Co-operative Societies, Gujarat State on the basis of which the petitioner society has inserted Bye-law No.27A for the purpose of disqualifying the defaulters of any cooperative society from participating in the elections of Directors of the petitioner -Bank, which is a State level Co-operative Bank. 4. The relevant statutory provisions having a bearing on the controversy in this petition are as under :- 4.1 The petitioner - Bank as well as the respondents societies are registered under he Gujarat Co-operative Societies Act, 1961 (for short, “the Act”). Section 8 of the Act provides for application for the purpose of registration. An application shall be made to the Registrar in the prescribed form, and shall be accompanied by four copies of the proposed bye-laws of the society, SCA/139/0008 4 JUDGMENT Section 9 provides that on receipt of the application for registration from a society, if the Registrar is satisfied that the society has complied with the provisions of this Act and the rules as to registration and that its bye-laws are not contrary to the Act and the Rules, he shall register the society and its bye-laws. Section 13 of the Act provides that the bye-laws may be amended in the manner prescribed at a general meeting of the society and shall be forwarded to the Registrar and if the Registrar is satisfied that the amendment so forwarded is not contrary to this Act or the rules, he may register the amendment of the bye-laws. Section 14 confers on the Registrar the power to direct amendment of bye-laws if it appears to the Registrar that the amendment of the bye-laws is necessary or desirable in the interest of the society. This Section also confers powers on the Registrar to enforce compliance with such direction. 4.2 Section 27, particularly sub-section (2) thereof and Section 145F are relevant and are reproduced hereunder :- “27. No rights of membership to be exercised till due payments are made (1) No person shall exercise the rights of a member of a society, until he has made such payment to the society in respect of membership, or acquired such interest in the society, as may be prescribed; by the rules, or the bye-laws of such society. (2) The person who has committed a default and remains as such defaulter in making repayment of loan or interest thereon for a period of one year from the due date of repayment of such loan or interest or installment shall not be entitled to exercise voting rights of a member of a society till all such repayments are made.” [emphasis supplied] 145-F. Disqualification for membership,- (1) A person shall be disqualified from being elected, as, and for a member of the committee of any specified society - a) (disqualification of a salaried employee) ..... (b) & (c) (disqualification on conviction for certain offences) SCA/139/0008 5 JUDGMENT ..... (d) ..... (e) if he is also disqualified by or under any other provision of this Act. 4.3 Rule 32 of the Gujarat Cooperative Societies Rules, 1965 provides for qualifications for the members of the committee. Sub-rule (1) of Rule 32 reads as under :- "(1) Every member of a society who is entitled to vote shall be eligible for appointment as a member of a committee thereof if- a) he is not in default in respect of any loan taken by him for period as is specified in the bye-laws, or b) .... .... .... .... c) If he is not otherwise disqualified for appointment as such member or, ... ... ... .... 5. The Registrar, Co-operative Societies, Gujarat State, respondent No.2 herein issued a statutory order dated 1.6.2005, the translated version of which, reads as under: “Sr.No.VHT/02/K/Liquidate/823/05 Registrar Cooperative Societies, No.10, Dr.Jivraj Mehta Bhavan, Gandhinagar. Date: 01/06/2005 In the State of Gujarat, Cooperative sector has made considerable progress in the last 50 years. In the economic and social development of Gujarat, there has been important contribution of Cooperative Societies; more particularly in sectors like, milk, sugar, banking, housing, there has been noticeable functioning of Cooperative Societies. From amongst the societies functioning in cooperative sector, SCA/139/0008 6 JUDGMENT many are inter-connected with one another. Hence, effect of a society in a particular sector is definitely felt over societies working in other sectors. For quite some time an atmosphere of mistrust is created in cooperative banking sector and because of that a feeling of doubt is created in the minds of people towards the entire cooperative sector. Therefore, a need is felt to take such immediate steps as to prevent adverse effect on the works of public interest being carried out by cooperative sector. In many of the cases, the elected members of management committee and office bearers of the society are found primarily responsible for this situation. In some cases, it is found that the office bearers themselves are defaulters of their society or of some other society. This is a blow to the basic principle of cooperation and confidence. From various quarters, concern and demand has been raised that in public interest a defaulter should not be continued as an office bearer of a society so that transparency can be brought in management of societies and a definite example of social and moral responsibilities can be set and a feeling of trust can be created amongst the members and people at large towards the office bearers of the societies. In this situation, in the public interest and for development of cooperative sector and to restore confidence in it, it is considered necessary to make such provision. Provisions for disqualification applicable to defaulters are there in Section 145-F(1)(e) of Gujarat Cooperative Societies Act, 1961, Rule 32(1)(a) of the Gujarat Cooperative Societies Rules, 1965 and qua Urban Cooperative Bank in Section 115(C)(2)(b)(ii). However, absence is felt of a clear provision that a defaulter of any cooperative society in the State cannot be a member of the management committee of other cooperative societies. By making such a provision, an atmosphere of trust and inter-se correlation will be developed amongst societies and moral responsibility of cooperative society and its elected members of management committee will be established towards their members, depositors and public at large. Hence, in the larger public interest, to fulfill the aforesaid purpose a need is felt to pass an order under the powers conferred upon me vide S.160(1) of the Gujarat Cooperative Societies Act, 1961 to all cooperative societies in the State and accordingly I pass the following order :- ORDER 1. All cooperative Societies in the State including specified Cooperative Societies will amend their Bye-laws to the effect that a defaulter of any other cooperative society cannot continue to hold office as a member of committee of the society and shall not participate in the SCA/139/0008 7 JUDGMENT election. The same shall be enforced in the election rules. 2. The resolution to amend the Bye-laws as per direction No.1 shall be passed in the Annual/Special General Meeting of the society. 3. All cooperative societies in the State will have to get amendment in the Bye-laws carried out as per this order before 30/9/2005 and shall get it approved by the competent authority. For the purpose of this order, definition of defaulter is as follows: (i) For Societies which are engaged in the activity of dispensing credit, any individual member, who has defaulted in paying the due amount of the society. (ii) For societies engaged in business other than dispersing credit, if such society itself is a defaulter of another society, then all the members of such society. Sd/- Registrar Cooperative Societies Gujarat State, Gandhinagar.” [emphasis supplied] 6. The above Statutory order was issued in exercise of powers under Section 160 of the Act. Section 160 (1) of the Act reads as under :- “160. Registrar's power to give direction:- (1) If the Registrar of his own motion or otherwise is satisfied that in public interest or for the purposes of securing the proper implementation of co-operative production and other development programmes approved or undertaken by the State Government or for linking and co-ordinating of co- operative activities such as marketing and credit or securing the proper management of the business of the society generally or preventing the affairs of the society being conducted in a manner detrimental to the interests of the members, or of the depositors or the creditors thereof, it is necessary to issue directions to any class of societies generally or to any society or societies in particular, he may issue directions to them, from time to time, and all societies or the society concerned, as the case may be, shall be bound SCA/139/0008 8 JUDGMENT to comply with such directions." Sub-section (4) of Section 160 of the Act empowers the Registrar to enforce compliance with the direction under sub- section (1) including the power to remove a member of such committee, and appoint any other person as a member of the Committee in his place for the remainder of the term of his office. 7. The Election Officer, taking into account the provisions of Section 27(2) and Section 145-F, has held by the impugned order dated 27.11.2008 that the disqualification will apply only in respect of the election of the Directors of a Co-operative Society of which the concerned person is a defaulter and not in respect of any other co-operative society. 8. If Section 27(2) is taken by itself, one of the plausible conclusions can be that a person who has committed a default and remains as such defaulter in making repayment of loan or interest thereon for a period of one year from the due date of repayment of such loan or interest or installment shall not be entitled to exercise voting rights of a member of a society till all such repayments are made. But bye-law No.27A is required to be read along with the statutory direction dated 1.6.2005 and a conjoint reading of the said provisions makes it clear that every member of a defaulter society (engaged in business other than dispensing credit) is to be treated as a defaulter for the purpose of disqualification under bye- law No.27A read with the statutory order dated 1.6.2005 and none of the members of the defaulter society can participate in the elections to the Board of Directors of any other co-operative society. We may also note at this stage the submission made by learned AGP Ms. Nisha Parikh for State of Gujarat that the question raised in the petition is required to be decided in light of the statutory order dated 1.6.2005 issued by the Registrar under sub- section (1) of Section 160 of the Act. SCA/139/0008 9 JUDGMENT 9. There is no dispute about the fact that respondents Nos.11, 12, 14 and 15 are engaged in business other than dispensing credit and are defaulters of other cooperative societies. In view of the legal position discussed above, all members of the said four co-operative societies are disqualified from participating in the elections to the Board of Directors of the petitioner Bank. 10. We may now deal with the submission of learned Counsel Mr. Tushar Mehta for the four respondent societies that bye-law No.27A applies only to a person and not to a cooperative society. Hence, respondents Nos.11, 12, 14 and 15 which are cooperative societies cannot be considered as disqualified under the said bye-law. 11. This submission overlooks the provisions of bye-law No.4 which provides that membership of the petitioner - Bank shall be open to (1) Cooperative Central Financing Agencies (2) Apex Co-operative institutions of any State and (3) Urban Co-operative Banks and Banking Unions and Industrial and other processing cooperative societies with the required paid-up share capital which are registered or deemed to be registered under the respective Co- operative Societies Act and/or Multi State Co-operative Societies Act. Bye-law No.4 makes it specifically clear that an individual member of the Bank shall not be eligible for, nor have right to vote in, the elections. Hence, the voters for the constituency under Rule 26(c) and also voters for the constituency under bye-law 26(b) are bound to be cooperative societies. Individuals cannot become members of the petitioner- Bank with voting rights. Rule 5(2) of the Election Rules, 1982 also provides how a society, which is member of a specified society, has to communicate the name of its delegate to the specified society. The relevant portion of the said Rule reads as under :- SCA/139/0008 10 JUDGMENT "5. Particulars to be included in provisional list of voters. (2) Where a society is a member of a specified society, the specified society shall call for the name of the delegate duly authorised to vote at an election on behalf of the affiliated society, so as to reach it, within ten days next after the date of drawing up the accounts. While communicating the name of its delegate to the specified society, the affiliated society shall enclose a copy of the resolution of the society or its committee under which the delegate is so authroised. The specified society shall include in the list of voters the names of all such delegates as have been communicated to it before the date fixed for publication of the provisional list." It is thus, very clear that the persons whose names are to be included in the list of Voters under bye-law 26(c) or in the separate list of voters under bye-law 26(b) will only be delegates of the cooperative societies falling in the respective categories. Hence, it has to be held that “person” disqualified under the Bye-law No.27A will be a cooperative society and its delegate. On conjoint reading of the provisions of the Act, the Rules and the Bye-laws, we reject the submission that bye-law No.27A does not apply to cooperative societies. 12. As regards the submission of the four respondent societies that the voters' list cannot be challenged by the petitioner Bank to which the elections are being held and that only any other voter can challenge such list, the provisions of Rule 4(3) of the Election Rules, 1982 are a complete answer to the said contention. Rule 4(3) reads as under:- “4. Provisional list of voters : (3) Simultaneously with sending of provisional list of voters under sub-clause (2) every society shall send in writing to the Collector a list of members who are disqualified to vote as per the provisions of the Act, Rules or its Bye-laws and shall inform to the member who has been shown disqualified in the said list in writing, pointing out such disqualification incurred SCA/139/0008 11 JUDGMENT by him. The said list shall be treated as objections under sub- rule (3) of rule 6." [emphasis supplied] Under the above Rule, the petitioner Bank lodged its objections against the concerned cooperative societies under bye- law No.26(c) even at the time of sending the provisional list of voters to the Collector and therefore, the Election Officer's decision on those objections can certainly be challenged by the petitioner Bank. 13. We now deal with the preliminary contention raised by learned Advocate General appearing for the Election Officer (respondent No.3) and learned counsel Mr. Tushar Mehta for the respondent - societies that the election process having commenced, this Court should not interfere with the Election Officer's decision of including the four respondent societies in the voters' list. They have placed reliance on a Full Bench decision of this Court in Daheda Group Seva Sahakari Mandli Ltd. vs. RD Rohit, 2006 (1) GCD 211 (Guj.) (FB). 14. Similar preliminary contention raised in another petition under Article 226 of the Constitution challenging the voters' list was rejected by a Division Bench of this Court to which one of us was a party. In Shrutbabdhu H. Popat v. State, 2007(3) GLR 1942, the preliminary contention was rejected on the ground that after the decision of the Full Bench decision rendered on 27.4.2005, in the subsequent decision dated 25.8.2005 of the Apex Court, in the case of Pundlik v. State of Maharashtra reported in 2005(7) SCC 181, the Apex Court has held that though preparation of the voters list is one of the integral process of election and that normally the High Court should not interfere in exercise of powers under Article 226 of the Constitution, but such action must be in accordance with law. In Pundlik's case, the Apex SCA/139/0008 12 JUDGMENT Court distinguished their decision in Shri Sant Sadguru Janardan Swami's case, 2001 (8) SCC 509 in which objections against publication of the provisional electoral roll of the society were considered by the Collector and dispose of. The final electoral roll was published on 2.7.1999. Election program was drawn by him on 21.10.1999. Thereafter the petitioner filed a writ petition in the High Court for quashing the voters' list. It was in the background of the said facts that the Apex Court held in Shri Santi Sadguru case that the High Court should not stay continuation of the election process even if there may be some breach of Rules while preparing the electoral roll. Just as in the Pundlik's case, in the instant case the petitioner has taken action for challenging the inclusion of respondent Nos. 11 to 15 in the final voters' list immediately after publication of the voters' list. 15. In Shrutbabdhu case, this Court also followed the principles laid down in Election Commission of India vs Ashok Kumar, 2000 (8) SCC 216 that any decision in the election process is open to judicial review on the ground of malafide or arbitrary exercise of powers and that situation is required to be corrected without postponing or interrupting the election process. The impugned decision having been found to be arbitrary as in violation of bye-law No. 27A read with the statutory mandate under Section 160 of the Act, the impugned decision deserves to be quashed which will not have the effect of postponing or interrupting the election process. O R D E R 16. For the reasons aforesaid, this petition is allowed by quashing and setting aside the impugned orders dated 24/27.11.2008 passed by the City Deputy Collector and Election Officer, Ahmedabad, (respondent No.3 herein) in so far as the said SCA/139/0008 13 JUDGMENT orders provide for inclusion of delegates of respondents Nos.11, 12, 14 and 15 in the Voters' List for the Constituency under Bye-law No.26(c). Respondent No.3 shall not permit the delegates of respondents Nos.11, 12, 14 and 15 to participate in the Elections to the Board of Directors of Gujarat State Co-operative Bank Ltd. Rule is made absolute to the above extent with no order as to costs. (M.S.Shah, J.) (H.N.Devani,J.) Sreeram.