* THE HONOURABLE SRI JUSTICE GODA RAGHURAM + WRIT PETITION NO. 25318 OF 2003 %FRIDAY, SIXTH DAY OF AUGUST, TWO THOUSAND FOUR # A.P. State Cooperative Societies Secretaries & Employees Union, B-780, Hyderabad, rep. by its General Secretary, P.Narasimha Reddy Petitioner Versus $ The Government of Andhra Pradesh, Cooperation Department, rep. by its Secretary, Hyderabad, and another. Respondents ! Counsel for the petitioner : Sri S.Ramachandra Rao, Senior Counsel, assisted by Sri K.R.Prabhakar, Advocate ^ Counsel for the respondents : Government Pleader for Cooperation < Gist : >Head Note: ? 1 2002(1) ALD 271 2 2003(1) ALD 197 3 2004(2) ALD 273 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE SIXTH DAY OF AUGUST TWO THOUSAND AND FOUR PRESENT THE HON'BLE MR JUSTICE GODA RAGHURAM WRIT PETITION NO : 25318 of 2003 Between: A.P. State Cooperative Societies Secretaries & Employees Union, B-780, Hyderabad, rep. by its General Secretary, P.Narasimha Reddy ..... PETITIONER AND 1. The Government of Andhra Pradesh Cooperative Department, rep. by its Secretary, Hyderabad. 2. The Commissioner & Registrar of Cooperative Societies, Hyderabad. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue a Writ, order or direction more particularly one in the nature of Mandamus declaring the action of the Government in issuing G.O. Ms. Nos. 308, Agriculture & Cooperation (Coop.VI) Department, dt.19.11.2003, G.O.Ms. No. 94, Agriculture & Cooperation (Coop.VI) Department, dt. 28.2.2004 and G.O.Ms. No. 1104, Agriculture & Cooperation (Coop. VI) Department, dt 4.12.2003 as arbitrary, illegal, unjust, contrary to law and issue the consequential directions not to give effect to G.Os, impugned herein viz., G.O. Ms. Nos. 308, Agriculture & Cooperation (Coop.VI) Department, dt.19.11.2003, G.O.Ms. No. 94, Agriculture & Cooperation (Coop.VI) Department, dt. 28.2.2004 and G.O.Ms. No. 1104, Agriculture & Cooperation (Coop. VI) Department, dt 4.12.2003 and further direct the respondents to implement the directions of the Registrar of Cooperative Societies (Statutory Authority) reflected in Rc.No. 3958/2004, dated 23.2.2004. For the Petitioner: Mr. S.Ramachandra Rao, Senior Counsel, assisted by Mr. K.R. Prabhakar, Advocate For the Respondents : Government Pleader for Cooperation The Court Made the Following :ORDER: The union of the employees and secretaries of the A.P. State Cooperative Societies has filed this writ petition. Initially invalidation of the Government orders in G.O.Ms. No. 308 Agriculture & Cooperation (Coop. VI) Department, dated 19.11.2003 was sought. By an amendment, which was ordered on 18.3.2004, in addition, invalidation of G.O.Ms. No.94 Agriculture & Cooperation (Coop. VI) Department, dated 28.2.2004 and G.O.Ms. No. 1104 Agriculture & Cooperation (Coop. VI) Department, dated 4.12.2003 has also been prayed for and in addition a direction to the respondents to implement the directions of the Registrar of Cooperative Societies contained in the proceedings Rc.No. 3958/2004, dated 23.2.2004. Chronology of events, in brief:- A scheme for providing financial assistance to Primary Agricultural Credit Cooperative Societies (PACS) was formulated by the Government of India known as “Half a Million Jobs Programme”. The intent of the scheme was, inter alia, to meet the managerial requirements of the PACS. Under the scheme during the year 1973- 74 approval was accorded by the Central Government for incurring an expenditure of Rs.36 lakhs on the payment of subsidy to PACS to enable them to meet the cost on account of employing Paid Secretaries. The Registrar of Cooperative Societies (the Registrar) was accordingly directed, in G.O. Ms. NO. 390 Agriculture & Cooperation (Coop. VI) Department, dated 12.7.1973 of the State Government to consider the factors enumerated in the G.O. while selecting societies for appointment of 2,000 Paid Secretaries in respect of whom subsidy has been sanctioned by the Government of India. The Paid Secretaries so appointed were to be paid a consolidated salary of Rs.150/- pm. The Cadre Committee constituted by the Registrar u/Sec. 116A of the A.P. Cooperative Societies Act, 1964 (for short ‘the Act’) was required to administer the scheme. Despite the above measure PACS continued to be in financial distress and were unable to meet the cost of Paid Secretaries. Consequently a restructuring of the large number of PACS was undertaken in 1977 by merging what were perceived to be financially weak PACS. As a result, about 15000 PACAS were pruned to about 7,000. In G.O. Ms. NO. 198 dated 28.3.1978 and consequent proceedings of the Registrar dated 29.4.79 a common cadre fund was created to meet the cost of Paid Secretaries of PACS out of the contributions from cooperative institutions. A State cadre fund committee was also constituted for the administration of the cadre fund. Despite these and other measures, PACS continued to be financially weak. Over the years the salaries of the Paid Secretaries was enhanced contributing to further financial distress of the PACS. There also ensued over a period of time persistent friction between the elected managements of the PACS and the Paid Secretaries. Successive committees were appointed (B.K.Rao Committee and D.S. Iyer Committee) to study the problem. The latter committee recommended the abolition of the common cadre and relegation of Paid Secretaries to the PACS with administrative control over them vested with the management of the PACS. Consequently by A.P. Act 21/85 Sec. 116AA was introduced into the Act with effect from 22.4.1985 abolishing the common cadre for employees of PACS and vesting the PACS management with a power to fix staffing pattern, qualifications, pay scales, but with prior approval of the Registrar –vide Sec.116C of the Act. The common cadre of all categories of employees other than those specified in Sec.116A constituted before the commencement of the A.P. Cooperative Societies (Amendment) Act, 1985, was abolished by a legislative provision Sec.116AA introduced into the Act by A.P. Act 21/85. This legislative measure also introduced Sec.116C into the Act whereby a society was empowered to fix its staffing pattern, qualifications, pay scales and other allowances for its employees with the prior approval of the Registrar. Consequent on the abolition of the common cadre and substitution by a regime of allotment of Paid Secretaries to various PACS, the Registrar on 30.9.1985 communicated special model bye laws dealing with the service conditions of employees of PACS including the aspect such as recruitment, pay scales, disciplinary control and the like. The special model byelaws were further revised and communicated to the PACS for adoption on 17.10.93. It would appear that the Union of Paid Secretaries obtained a stay disabling adoption of these revised special model bye laws. In the year 1988 the State Government constituted a district level committee for recommending cases to the managing committees of PACS in the areas relating to appointment and disciplinary proceedings against the Paid Secretaries and other employees. The union of Paid Secretaries challenged the constitution of the district level committee headed by the Chairman, District Cooperative Central Bank (DCCB) as its president, and obtained stay. This court is not informed as to what happened to this lis. What requires to be noted however is that the State does not appear to have been rid of its earlier mind set of exercising control over the employees of the PACS despite the explicit legislative mandate of Sec.116C of the Act introduced by Act 21/85 whereby the control over its employees vests with the PACS. In the mandatory legislative context neither the Registrar nor the Government ought to have had any direct say in the appointments, staffing pattern, pay scales and emoluments or disciplinary control over the Paid Secretaries or other employees of the PACS. This disinclination of the State to part with the hitherto available power despite the explicit legislative divestiture of its direct control had given rise to other problems which will be chronicled hereinafter. With effect from 22.4.1985 in view of Sec.116C of the Act, the power of fixing staffing pattern, qualifications, pay scales and other allowances for its employees vests with PACS subject to prior approval of these areas by the Registrar. However the Paid Secretaries were agitating with the Government inter alia for regular scales of pay and allowances as also for absorption into the service of the DCCBs in Category V (Supervisors). Responding to this demand the Registrar by proceedings dated 21.2.1991 constituted a committee to go into the conditions of service of Paid Secretaries. This committee inter alia examined the possibility of ensuring a scale of pay between Category V and Category VI of DCCB employees. The committee had noted that PACS are institutions distinct from the cooperative bank and therefore giving Paid Secretaries parity in pay scales and DA with the employees of the bank was inappropriate. This committee felt that higher pay should be earned by the Paid Secretaries by their additional efforts and toning up the revenues of the PACS. Without any jurisdiction, power or authority (in the context of Sec.116C) the committee recommended a uniform pay scale to all cadres of Paid Secretaries working in the several PACS, at Rs.264- 708/-. The State Government in total disregard of the provisions of Sec.116C, after discussion only with the representatives of the Paid Secretaries and without even consulting the PACS issued a memo dated 14.10.1991 inter alia allowing the scale of Category-V (Supervisors) of DCCBs to the Paid Secretaries. Other decisions contained in this memo were to abolish the cadre fund, to create a corpus fund for payment of salaries to the Paid Secretaries and to permit mutual transfers. Thus by a memo, without any power, authority or financial responsibility towards the establishment charges of the PACS, the State Government not only mandated a pay scale to the category of Paid Secretaries but also conceptually treated all PACS as one unit explicated by its decision to permit mutual transfers. In issuing this mandate in the memo dated 14.10.1991, the State Government does not appear to have even considered the financial position and the scale of operations of the various PACS in the State – an irrational and irresponsible exercise of non existent power. The Government memo dated 14.10.1991 was communicated by the Registrar to the PACS on 30.10.1991. However on 14.2.1992 the Registrar intimated to the District Cooperative Officers and General Managers of DCCBs that they should await further instructions in the matter. Thereafter based on the proposal of the A.P. State Cooperative Bank (APCOB) the Registrar by a memo dated 23.11.1992 issued details of pay and allowances including DA and guidelines for payment of incentive allowances in respect of Paid Secretaries of PACS. This memo was equally in contravention of the unambiguous mandate of Sec.116C of the Act. There were no proposals from the PACS in respect of the pay scales and emoluments of Paid Secretaries which were approved by the Registrar. The Registrar’s communication dated 23.11.1992 was a thus diktat de hors the law. Galvanised by the memo of the State Government dated 14.10.1991 and the circular memo of the Registrar dated 23.11.1992, it is alleged, the Paid Secretaries started paying themselves salaries in accordance with the State Government’s memo dated 14.10.1991. The Registrar’s memo dated 14.2.1992 not to operationalise the Government memo dated 14.10.91 was challenged by various Paid Secretaries in this court and by interim orders this court suspended the operation of the Registrar’s memo dated 14.2.92 and in another case this court directed status quo as on 23.11.92 with regard to the salaries of the Paid Secretaries. Unions of the employees and Paid Secretaries of PACS of various districts had filed W.P. No. 16558/92 and batch challenging the memo of the Registrar dated 14.2.92 (in effect keeping in abeyance the Government memo dated 14.10.91). The batch of writ petitions came to be considered by a Division Bench of this court and by the judgment dated 30.8.96 they were disposed of. In defence to the reliefs claimed it was contended on behalf of the respondents which included the State Government that under the provisions of Sec.116C of the Act and Rule 72(b) of the A.P. Cooperative Societies Rules 1964 (for short ‘the Rules’), the PACS were entitled to fix the service conditions including the pay scales of its employees and with the approval of the Registrar and that the Government had no power to fix the pay scales. In view of the rival contentions the Division Bench disposed of the batch of writ petitions directing the Government to constitute a committee to consider the pay scales of the Paid Secretaries and their allotment to societies after considering the views of the representatives of the APCOB, DCCBs, PACS and the petitioner-Union and to take a decision in accordance with the provisions of the Act. This decision was rendered by this court on noticing that undisputedly neither the APCOB, DCCB or PACS were heard or their views considered before the issuance of Government memo dated 14.10.1991. After the above judgment, the State Government in G.O. Ms. No.1338 dated 23.12.96 constituted a committee comprised of officers to study the issue of pay scales of Paid Secretaries and to make recommendations. The committee submitted its report to the State Government. Again the Government referred the matter to a Cabinet Sub Committee for further examination of the issue. The Cabinet Sub Committee submitted its recommendations. Thereafter the Government referred the issue to another Cabinet Sub Committee constituted by G.O. Ms. No. 71 dated 25.3.2000. This Cabinet Sub Committee was indentured to consider the general working of the cooperatives and to suggest measures for vitalizing the PACS. The second Cabinet Sub Committee also submitted its recommendations in due course. Thereafter the State Government appears to have woken up to the legislative reality and decided that Paid Secretaries should be treated as employees of the concerned PACS and that their pay and service conditions should be determinable by the PACS themselves after prior approval of the Registrar. This was in the year 2000, 15 years after Sec. 116C was introduced into the Act w.e.f. 22.4.85 by Act 21/85. All this while, unmindful of the clear, explicit and mandatory provisions of the Act, the State Government, the Registrar and the various authorities persuaded themselves to a misconception that they had a sui generis authority, power and jurisdiction to unilaterally fixed the service conditions and pay scales of employees of PACS including Paid Secretaries. In disregard of the spirit and even the text of the mandatory Legislation, these authorities issued a series of orders and constituted a host of committees to go into areas prohibited for their consideration by the Act. Meanwhile on 25.9.97 after the judgment dated 30.8.96 in W.P. No.16558/92 and batch, the Registrar by a circular memo issued instructions to all officers of the department to ensure that Paid Secretaries do not draw pay on par with the pay scales of Cadre-V (Supervisors) of the DCCBs as revised in 1996. Again the unions of employees and Paid Secretaries of the PACS filed writ petitions challenging the circular of the Registrar dated 25.9.97 and sought liberty to draw the pay scales of Cadre-V (Supervisors) of DCCBs as revised for the said category. By interim orders of this court the Registrar’s circular dated 25.9.97 was suspended. As neither the incomes nor profits of the PACS were sufficient to sustain the higher pay scales including revised pay scales, salaries were being drawn by the Paid Secretaries from the amounts recovered from the loanees of the PACS without the amounts being remitted to the DCCBs towards repayment of members’ loans. As a result, across the State a large number of PACS defaulted in the repayment and remittal of the amounts due to the DCCBs. As a consequence DCCBs defaulted in the remittal of the amounts due to the APCOB. It is inexplicable as to why the mandatory annual audit of the affairs of the PACS (u/Sec.50 of the Act) did not reveal this regnal financial anarchy since 1985. PACS continued to employ Paid Secretaries and other employees who were drawing salaries and emoluments year after year without an approved staffing pattern, without approved pay scales and the employees were appropriating the amounts recovered from the loanees without remitting the amounts due to the DCCBs and the DCCBs in turn were defaulting to the APCOB. All this in clear contravention and subversion of the explicit provisions of Sec. 116C of the Act apart from a clear transgression of every financial norm ordained even by the minimal precepts of financial discipline. A situation had arrived when all the three tiers of the cooperative credit institutions – the APCOB, the DCCBs and the PACS were facing liquidation and insolvency. The elaborate regulatory and supervisory architecture forged by the carefully synchronised provisions of the Act was rendered dysfunctional by the mal-administration and abdication of the Executive Branch. Earlier, the validity of Rule 72 of the Rules (which was intended to effectuate the provisions of Sec.116AA of the Act) was challenged and upheld by the judgment of a Division Bench of this court dated 20.12.88 in W.P. No. 11634/88. The provisions of Sec.116AA were challenged in W.P. No. 17735/89 by the A.P. State Cooperative Secretaries and Employees Union, Warangal District Branch. A Division Bench of this court by the judgment dated 18.7.91 declined to go into the validity aspect on account of the scanty pleadings and absence of substantiation of the principles on which such challenge was presented. A learned single Judge of this court in a latter decision dated 10.10.91 in W.P. No.15506/89 repelled another challenge to these provisions of the Act. It also requires to be noticed that for nearly a decade the Government memo dated 14.10.1991 was not recalled by the State. Only the Registrar by the circular memo dated 14.2.92 had unsuccessfully tried to interdict the effectuation of the Government memo dated 14.10.1991. Eventually, confronted by the spectre of the impending collapse of the PACS, the State Government issued G.O.Ms.No. 314 dated 26.12.2000. This G.O. is an exercise in equivocation. Without admitting, as it should have that the State had for nearly a decade exercised illegal and irresponsible power, it records: “ ….. It is a moot question whether the Registrar, under the guise of exercising power u/Sec. 116C or under any other provisions of the Act or Rules, can impose uniform pay scale and allowances for all the PACS in the State irrespective of the volume, business/activity and the paying capacity depending upon financial capability of the Society concerned;” The decision in G.O.Ms. No.314 dated 26.12.2000 is that matters of fixing the establishment strength, staffing pattern, scales of pay and other allowances of the employees should be left to be decided by the PACS with the prior approval of the Registrar as laid down under the provisions of Sec.116C of the Act and the Rules made thereunder, based on their capacity to pay, which would be determined by factors such as business turnover, administrative costs, margin earned on business turnover and the consequent profit or loss. This G.O. concludes with a direction issued in purported exercise of powers u/Sec. 131 of the Act to the Registrar, to take consequent action in matters relating to the staffing pattern, qualifications, pay scales and other allowances for employees of the PACS in accordance with the provisions u/Sec. 116C of the Act. The earlier memo dated 14.10.91 was also cancelled in this G.O. At last the executive Government recognised the legitimacy of Sec.116C of the Act over 110 months after the memo dated 14.10.91. The provisions of the Act were recognised more than one and a half decades after the coming into force of Act 21/85. Writ petitions were filed by unions of Paid Secretaries and employees of PACS challenging the orders in G.O.Ms. No. 314 dated 25.12.2000. A learned single Judge of this court granted suspension of the provisions of the G.O. and also ordered that the writ petitions be listed before a Division Bench for hearing. A Division Bench of this court by the judgment dated 16.10.2001 in W.A. Nos.424 and 425 of 2001 along with connected writ petitions rejected the challenge and upheld the validity of G.O.Ms. No.314. This court recorded the following infirmities in the earlier Government memo dated 14.10.91: a. The orders in the memo dated 14.10.91 were issued in disregard of the provisions of Sec.116C of the Act. b. The order was issued without consultation with the APCOB, DCCBs and PACS, which are effected by the decision. c. The memo dated 14.10.91 could not be sustained even under the provisions of Sec.131 of the Act as the Government cannot issue directives contrary to the provisions of the Act. d. No understanding between the State Government and the class of Paid Secretaries, under the provisions of the Act is legitimate and enforceable without the consent of the PACS to such an agreement. and e. The memo was issued even without considering the financial status and capacities of the PACS to sustain the increased financial burden. As against the aforesaid judgment of the Division Bench dated 16.10.2001 the aggrieved employees of PACS preferred Special Leave Petitions before the Supreme Court. The Supreme Court dismissed SLP Nos. 250 and 251 of 2002 by the judgment dated 2.1.2002. The provisions of the Act were again amended by Act 22 of 2001 with effect from 25.4.2001. Sec.116C was amended whereby the expenditure towards pay and allowances of the employees (of a society including PACS) shall not exceed 2% of the working capital or 30% of the gross profit, in terms of actuals in a year whichever is less. A ceiling limit on the expenditure on the staff of a society was thus incorporated as a legislative prescription. The provisions of Secs. 116AA and 116C of the Act were challenged by the A.P. State Cooperative Societies Secretaries and Employees Association, Nizamabad. In terms of an earlier judgment dated 10.10.1991 in W.P. No. 15506/89 a learned single Judge disposed of the writ petition. Aggrieved the petitioners preferred an appeal. A Division Bench of this court by the judgment dated 19.10.2001 (A.P. State Cooperative Societies Secretaries and Employees Association, Nizamabad vs State of A.P.) rejected the appeal recording the finding that the provisions of Secs. 116AA and 116C of the Act are not unconstitutional. As a consequence, surcharge notices were issued to the Paid Secretaries working in various PACS for recovery of the excess amounts drawn by them pursuant to the Government memo dated 14.10.1991. The Union of the Secretaries and Employees of Cooperative Societies challenged the initiation of proceedings and issuance of the surcharge proceedings u/Sec.60 of the Act, in W.P.No. 3076 of 2002. In the writ petition a direction was sought to the respondents not to apply the provisions of the A.P. Cooperative Societies Second Amendment Act 2001 (Act 22 of 2001) to the amounts already drawn prior to the amendment and not to take any coercive steps such as recoveries or refixation of salaries. It was principally contended that Act 22 of 2001 has no retrospective operation. A learned single Judge by the judgment dated 11.9.2002 (A.P. State Cooperative Societies Secretaries and Employees Association vs State of A.P. and others) allowed the writ petition. This court held (a) that the Government memo dated 14.10.1991 is void and inoperative only from 16.10.2001 (the date of the judgment in W.A. Nos. 424 and 425 of 2001 and batch); (b) that the provisions of Sec. 116C of the Act, as amended by Act 22 of 2001 and the amendment of Rule 28 of the Rules by G.O.Ms. No. 37 dated 28.1.2002 are prospective; (C) that the Registrar has no power to revise the pay scales retrospectively; (D) that the judgment of this court dated 16.10.2001 in W.A. Nos. 424 and 425 of 2001 does not per se enable recoveries of the emoluments drawn by the Paid Secretaries pursuant to the Government memo dated 14.10.91, till its cancellation by G.O. Ms. No. 314 dated 26.12.2000 and (e) that the salaries already drawn by the members of the petitioner’s union cannot be characterised as drawals by fraud or misrepresentation warranting invocation of recovery proceedings u/Sec.60 of the Act. It was also declared that the respondents have no right to recover the