IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC TUESDAY, THE 30TH JUNE 2009 / 9TH ASHADHA 1931 WP(C).No. 15973 of 2009(N) ---------------------------------------- PETITIONER(S): ------------------------ N.K.JOSEPH, PRESIDENT, KALLETTUMKARA SERVICE CO-OP. BANK LTD. NO.141, KALLETTUMKARA P.O., TRICHUR DISTRICT. BY ADV. MR.GEORGE POONTHOTTAM RESPONDENT(S): --------------------------- 1. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES(G), THRISSUR. 2. THE PART TIME ADMINISTRATOR(THE SENIOR INSPECTOR OF CO-OPERATIVE SOCIETIES, OFFICE OF THE ASST. REGISTRAR OF CO-OPERATIVE (G) SOCIETIES, MUKUNDAPURAM), KALLETTUMKARA SERVICE CO-OPERATIVE BANK LTD. NO. 141, KALLETTUMKARA P.O., TRICHUR DISTRICT. *ADDL.R3 & R4 ARE IMPLEADED: R3. T.K.JOHNY, THOMMANIA, THAZHEKKAD, KALLETTUMKARA P.O. R4. P.K.RAVI, PARAMBATH HOUSE, VALLAKKUNNU, P.O. KALLETTUMKARA – 680 683. (*ADDL.R3 & R4 ARE IMPLEADED AS PER ORDER DTD. 17/06/2009 IN I.A.NO.7195/09) **ADDL.R5 IS IMPLEADED: R5. T.P.NICHOLAS, S/O.PAULOSE, THANDIYEKAL HOUSE, KALLETTINKARA P.O., THRISSUR DISTRICT. (**ADDL.R5 IS IMPLEADED AS PER ORDER DTD. 30/06/2009 IN I.A.NO.7319/2009) R1 BY GOVERNMENT PLEADER MR. MOHAMMED HASHIM R2 BY ADV.MR.K.A.SREEJITH ADDL.R3&R4 BY ADV. MR.P.C.SASIDHARAN, ADDL.R5 BY ADV. MR.K.S.BHARATHAN. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 30/06/2009,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC.NO.15973/2009 N APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF THE JUDGMENT IN W.A.NO.178/04 DTD. 16/06/2005. P2: COPY OF THE NOTICE NO.CR.P.(2)3221/2008 DTD. 24/02/2009. P3: COPY OF THE VALUATION CERTIFICATE NO.D8-36/09 DTD.22/01/2009. P4: COPY OF THE JUDGMENT IN WPC.NO.8170/09 DTD. 18/03/2009. P5: COPY OF THE REPLY DTD. 22/04/09. P6: COPY OF THE ORDER IN R.P.NO.419/09 IN WPC.NO.8170/09 DT.25/05/09. P7: COPY OF THE COMMUNICATION NO.C.R.P.(2)2746/09 DTD.4/06/2009. P8: COPY OF THE COMMUNICATION NO.C.R.P.(2)3221/08 DTD.4/06/2009. P9: COPY OF THE ORDER NO.C.R.P.(2)3221/08 DTD. 6/06/2009. P10: COPY OF THE COMMUNICATION NO.O.3118/09 DTD. 19/05/2009. RESPONDENT'S EXHIBITS: R2(A): COPY OF THE EXPLANATION GIVEN BY THE SECRETARY. R2(B): COPY OF THE EXPLANATION GIVEN BY THE ASST.SECRETARY. /TRUE COPY/ P.A.TO JUDGE Kss ANTONY DOMINIC,J. --------------------- W.P.(C).No.15973 OF 2009 ------------------------ Dated this the 30th day of June, 2009. JUDGMENT The prayer in this writ petition is to quash Ext.P9. The other reliefs sought for in the writ petition are consequential in nature. 2. Petitioner claims to be the President of the Kllettumkara Service Co-operative Bank Ltd since 1996 and the writ petition is stated to be filed on behalf of the members of the Managing Committee elected in the year 2004, the term of which is to expire on 13.8.2009. According to the petitioner, they had occasion to approach this court by filing WP(c).No.430/04, challenging the One Time Settlement Scheme introduced by the Registrar of Co- operative Societies. The writ petition was dismissed and the matter was carried in appeal before a Division Bench in W.A. No.178/09. By Ext.P1 judgment, the writ appeal was WP(c).No.15973/09 2 allowed and the circular was set aside on the ground that the same was not beneficial to the Society. 3. Petitioner submits that, since his assumption as President of the Society in 1996, the society had made considerable progress in terms of deposit, turn over and profitability. It is stated that despite the above, Ext.P2, a notice under Section 32, was issued by the first respondent, based on an inspection report submitted by the Joint Registrar exercising his powers under Section 66 of the Act. As is seen from Ext.P1, the subject matter of the enquiry under Section 66 were seven allegations, but the charges levelled against the petitioner in Ext.P2, were only four. The first one was in relation to admission of 1643 members from outside the area of operation of the Society in violation of clause 4(a) of its bye laws. Second allegation was that the Society failed in implementing the circulars issued by the Registrar of Co- operative Societies introducing One Time Settlement Scheme. The 3rd was that, one of the members of the Board of Directors was in default and steps were not taken to recover the defaulted amount and the 4th was that the Managing WP(c).No.15973/09 3 Committee undertook construction of a building and in that process, incurred expenses exceeding the sanctioned estimate. 4. On receipt of Ext.P2, the petitioner challenged the same by filing WP(c).No.8170/09 before this court. The writ petition was disposed of as per Ext.P4 judgment dated 18.3.2009, paragraph 3 of which, being relevant, is extracted below for reference. “Having regard to the aforesaid, it is necessary that the Joint Registrar applies his mind to the question as to whether the petitioner has been given adequate opportunity to rectify the defects noticed in the enquiry and as to whether any further proceedings is called for in terms of Section 32. In this regard, the objections of the petitioner to Ext.P2 notice have to be adverted to and considered and the petitioner given adequate opportunity of being heard. Any application pending from the petitioner for rectification or for sanction etc, including in relation to the building construction, will be considered before a final decision is taken on Ext.P2 proceedings. Leaving open all other contentions, this writ petition is hence ordered n terms of what is aforesaid. It is further ordered that in the event of an order being issued against the interests of the society, that shall not be given effect to without serving copy of that order on the petitioner. It is also clarified that having regard to the facts and circumstances of the case, the initiation of proceedings under Section 32(1) need not WP(c).No.15973/09 4 prevent the Joint Registrar from issuing any directions for rectification, taking particular regard to the nature of the allegations raised against the petitioner.” 5. Subsequently, the petitioner submitted Ext.P5, a reply to Ext.P2 notice issued under Section 32 of the Act. According to the petitioner, as he apprehended that without putting him on notice as directed in Ext.P4, the Committee was likely to be superseded, R.P.No.419/09 was filed seeking review of Ext.P4 judgment. The review petition was considered by this court and was disposed of as per Ext.P6 order dated 25th May, 2009. Dealing with the grievances highlighted, this court passed the following order. “Therefore, the question whether the society should be permitted and sanction could be accorded to carry out the rectification, is a matter on which decision has to precede any further action on the proposal to supersede. Therefore it is clarified that the third sentence in the third paragraph of the judgment dated 183.2009 is issued requiring the respondent to not only consider any application pending for rectification or sanction, but also to express and issue the decision on the request for rectification and sanction before further proceeding with the proposed supersession. Therefore, on consideration of the petitioner's application for rectification or for sanction, an order shall be issued disclosing the decision of WP(c).No.15973/09 5 the respondent following such consideration. Only after giving the petitioner the communication of such decision, would the respondent be entitled to further proceed with any action on the basis of the notice which was impugned in the writ petition. The request of the petitioner for time to remove ineligible members would be considered and appropriately ordered by the respondent.” 6. In purported compliance with Exts.P4 and P6, Exts.P7 and P8 orders were passed by the first respondent on 4.6.2009, rejecting the petitioner's application for regularizing the excess amount incurred by him for construction of the building and also, rejecting the explanation regarding the admission of 1643 ineligible members from outside the area of operation of the Soceity. Petitioner submits that, these two orders were served by a special messenger on 5.6.2009 and that, immediately thereafter, Ext.P9 order superseding the Committee under Section 32 of the Act was passed by the first respondent on 6.6.2009. It is stated that in implementation of Ext.P9, the Administrator took charge of the Society on 6.6.2009 itself. 7. Counsel for the petitioner contends that Ext.P9 order has been passed in violation of the directions of this court in WP(c).No.15973/09 6 Ext.P4 judgment and Ext.P6 order in the review petition. It is also contended that the grounds urged in Ext.P9 order are totally unsustainable and that this is a case where power under Section 32 has been abused and therefore warrants interference by this court. 8. The learned Government attempted to sustain Ext.P9. According to the Government Pleader, admittedly the petitioner has incurred expenses much in excess of the sanctioned estimate. It is stated that such action of the petitioner was in violation of Rule 54 of the KCS Rules and Circular 26/85 dated 6.6.1985. In so far as the membership issue is concerned, the Government Pleader contended that nothing has been done by the Committee for removing of the aforesaid members. Answering the contention of the learned counsel for the petitioner that against the directions of this court in Exts.P4 and P6, long before Exts.P7 and P8 orders were passed, consultation process under Section 32(2) of the Act, was initiated by the first respondent, learned Government Pleader submitted that Sl. No.10 mentioned in Ext.P9 is only a communication issued by the first respondent to the District WP(c).No.15973/09 7 Co-operative Bank and Circle Co-operative Union and this communication does not reflect any decision taken by the first respondent. 9. On behalf of additional respondent No.3, the contention regarding the irregularities in the construction of the building was reiterated. Counsel also submitted that violation of Rule 54 straight away attracts the consequences which are provided in Section 32(c) of the KCS Act. It was also contended that in terms of the provisions in Section 66A of the Act, the Registrar has introduced the One Time Settlement Scheme and that while the Society was refusing to implement the said scheme, its benefit was given to a chosen few, whose names have been mentioned in Ext.P9. In so for as the retention of the ineligible members is concerned, counsel submitted that the Committee did not take any action for their removal. 10. Additional respondent No.5 submitted that, if at all the petitioner was aggrieved by the impugned proceedings, the remedy available to the petitioner is to seek the statutory remedy provided under the Act. He also contended that it WP(c).No.15973/09 8 was open to respondents to have even dispensed with consultation process, invoking their statutory powers under Section 32(3) of the Act. On behalf of the Administrator, counsel contends that on 6.6.2006, the Administrator took charge and therefore the petitioner had no authority to have filed the writ petition on 9.6.2009, describing himself as the President and using the official seal of the Society . 11. Before anything else, I shall deal with the contention that the petitioner should be relegated to pursue statutory remedies. From the contentions raised, I am satisfied that no disputed factual issue, incapable of resolution in this proceedings, arises for adjudication in this matter. That apart, the writ petition having been admitted, parties having filed their pleadings and argued on merits, I do not think it necessary or proper to reject the writ petition on the ground of availability of alternative remedy. 12. What arises for consideration is the validity of Ext.P9, the order passed by the first respondent exercising powers under Section 32 of the Kerala Co-operative Societies Act, superseding the committee, of which the petitioner is the WP(c).No.15973/09 9 President. A reading of Ext.P9 shows that, reference is made to Ext.P4 judgment, Ext.P5 reply and also a communication issued by the first respondent on 26.5.2009 to the District Co-operative Bank and the Circle Co-operative Union, in terms of Section 32(2) of the Act as part of the consultation process. The grounds relied for superseding the elected committee are following; I. That the Committee did not take any satisfactory action for the removal of the ineligible 1643 members who were admitted to the membership of the Society. ii. That the Society did not implement the benefit of One Time Settlement Scheme and had chosen to approach this court challenging the same and that at the same time, the Society has given the benefit of one time settlement scheme to one M.S. Asanar, Gopi and Leela Gopi. iii. That the Director, Mr. Neelakandan Namboothiri was in default to the Society and that despite his ineligibility, he was permitted to continue in the Society and was given another loan of Rs.75,000/- WP(c).No.15973/09 10 iv. That Committee undertook construction of a building with the sanctioned estimate of Rs.18,39,810/-, but however the Society incurred a total expenditure of Rs.31,77,743/-. 13. The above being the grounds on which Ext.P9 order under Section 32 of the Co-operative Societies Act having been passed, the validity of the order will depend upon the sustainability of the aforesaid reasons. 14. Before I proceed to examine the sustainability or otherwise of the reasons stated in Ext.P9, I shall deal with the contention raised by the counsel for the petitioner that Ext.P9 was passed in violation of Ext.P4 judgment and Ext.P6 order passed by this court. In Ext.P6 order in the review petition, it was specifically directed that only after giving the petitioner a communication on the decision to be taken by the first respondent, on the applications made by the petitioner for rectification or for sanction, the first respondent would be entitled to proceed further with any action on the basis of Ext.P2 notice. Orders passed by the first respondent in pursuance to Exts.P4 and P6 are Exts.P7 and P8 dated 4.6.2009 and these orders were delivered to the petitioner on WP(c).No.15973/09 11 5.6.2009. Section 32(2) of the Act provides that before passing order under Sub Section (1), the Registrar shall consult the financing Bank, the Circle Co-operative Union or the State Co- operative Union, as the case may be. The manner in which such consultation has to be done has been explained by this court in the judgment in Sahadevan V. Padmanabhan (2004 (1) KLT 192), where it was held that, mere forwarding of the copy of the show cause notice would not satisfy the requirement of the Act and that notice, reply and the tentative findings should be forwarded to the consultees, so that they can form an opinion and inform the same to the Joint Registrar. In this case on the admitted facts, reference No.10 dated 26.5.2009 mentioned in Ext P9 is the communication issued by the first respondent to the Circle Co-operative Union and the District Co-operative Union as part of the consultation process contemplated in Section 32(2). This communication evidently was much before passing of Exts.P7 and P8 and therefore the consultation, which is a part of the process contemplated under Section 32 was initiated in violation of the directions contained in Exts.P4 and P6. The WP(c).No.15973/09 12 contention of the Government Pleader that it being only a communication and not a decision does not deserve acceptance in the light of the law laid down by this court in the judgment referred to above. Even if it is only a communication, that could have been sent only after ExtsP7 and P8 are passed. Therefore, the contention of the learned counsel for the petitioner that consultation was initiated against the directions of this court deserves acceptance and I do so. 15. In so far as the reasons mentioned in Ext.P9 are concerned, the first reason is regarding the alleged delay on the part of the Committee, of which the petitioner is the President, in taking action for the removal of the ineligible 1643 members. The fact that ineligible members have been admitted in the Society does not seem to be a matter of dispute. However, it is to be mentioned that, it is a case of the petitioner, as is seen from Ext.P5 reply to Ext.P2 notice that, none of these members were admitted during the period when the present Committee was in office and on the other hand these memberships were granted prior to 1996. This also is not disputed by the respondents. Ext.P5 reply shows WP(c).No.15973/09 13 that in respect of such ineligible members, the Committee has already decided to issue show cause notice and 163 members have already been issued such show cause notices and that it has been decided by the Bank to complete the process within 2 months. The finding in Ext.P9 on this allegation is that taking into account the undertaking given by the Bank, further proceedings pursuant to Ext.P2 were deferred and that the progress made by the Society was unsatisfactory and therefore the order was issued. 16. In this context it is to be mentioned is that Ext.P5 reply is dated 22.4.2009. The process of consultation admittedly was initiated on 26.5.2009, when the Ist respondent must have, at least tentatively made up his mind and Ext.P9 order was issued on 6.6.2009 on the basis that, the progress made was unsatisfactory. Therefore in respect of the ineligible members, who are admitted to the society, prior to 1996, the petitioner had promised to complete the process of removal within 2 months in Ext.P5 and the supersession order was passed much before the expiry of the said period. In my view, this is clearly a hurried action WP(c).No.15973/09 14 intended to achieve a hidden agenda. This conclusion is further strengthened by the fact that, going by the averments in the counter affidavit, since the issuance of Ext.P9, nothing appreciable has been achieved by the Administrator so far. 17. Another ground is regarding the failure of the Bank in implementing OTS Scheme and the allegation is that it had extended the benefit in a discriminatory manner to two or three members. First of all, when the Registrar of Co-operative Societies introduced the One Time Settlement Scheme, the petitioner challenged its legality before this court and by Ext.P1, a Division Bench of this court accepted the case of the petitioner. Again when another scheme was introduced that was also challenged before this court by filing WP(c). No.31561/09 and in the said writ petition this court has passed an interim order of stay and the writ petition is still pending. In view of the above,the first respondent could not have accused the Society of having refused to implement the One Time Settlement Scheme. The other finding in Ext.P9 is that while the society refused to implement the One Time Settlement Scheme, it extended the benefit of the scheme to 3 WP(c).No.15973/09 15 persons mentioned in page 5 of Ext.P9 order. In so far as this finding is concerned, as rightly pointed out by the counsel for the petitioner, this is not an allegation raised in Ext.P2 show cause notice and therefore, the petitioner did not have an opportunity to answer that allegation. Such an issue could not have been found against the petitioner. 18. The other finding in Ext.P9 is that Sri. Neelakandan Nambuthiri, a Director of the Bank was a defaulter and he was allowed to continue. As is evident from Ext.P2 show case notice itself his liability to the Bank has been waived, extending the benefit of Debt Relief Scheme introduced by the Government of India. In so far as the ineligibility that is allegedly suffered by him is concerned, it may be that by the default committed he has rendered himself liable for removal in terms of the provisions contained in Rule 44 of the Kerala Co-operative Societies Rules, but that by itself will not render the Committee as a whole liable for supersession. 19. The other and the main ground relied on against the committee is the expenditure it has incurred for the construction of the building. Admittedly, the building in WP(c).No.15973/09 16 question had a sanctioned estimate of Rs.18,39,810/- and without sanction, the Committee incurred a total expenditure of Rs.31,77,743/-. In this context, I should mention that, a reference to Ext.P9 shows that except that the expenditure was incurred without the prior sanction of the Registrar as contemplated in Rule 54 of the Co-operative Societies Rules and Circular 26 of 1985 dated 66.1985, there is no case of any misappropriation or other irregularity. 20. The ground which is attracted to a case of this nature is the one provided under Section 32(1)(c). A reading of the said section shows that if the Registrar is satisfied that the Committee of any society makes any payment contrary to the Act, Rules or Bye-laws or causes loss or damage to the assets of the society, by breach of trust or willful negligence, he may after complying with the procedure laid down in this behalf, remove the Committee. A plain reading of the section would show that a mere payment contrary to the Act, Rules or Bye- laws or mere causing of loss or damage to the assets of the society, by itself, will not attract Section 32(1)(c) of the Act, unless such loss or damage caused is coupled with breach of WP(c).No.15973/09 17 trust or willful negligence. In A.K. Francis V. Joint Registrar (1990(2)KLT 470), in the context of Section 68, the expression `willful negligence' was considered by this court and following earlier judgments, it has been held as follows; “14. In Subbammal V. Tenkasi Co-op. urban Bank,AIR 1977 Md.92, Ramanujan, J held that willful negligence means intentional and purposeful omission. Merel negligence, however gross it may be, may not be sufficient to attract the section. The learned Judge observed thus after referring to various decisions on the point;- “The above decision clearly indicate that the use of the phrase”wilful negligence” in S.71 of the Act is for the purpose of holding a person in management liable if he has caused loss to the Society by his intentional and purposeful omission. Therefore the learned counsel for the petitioners is right in his submission that mere negligence, however gross it may be, may not be sufficient to attract the section” A bench of the Madhya Pradesh High Court deal with the matter in Nanhelal V. Asst. Registrar, AIR 1970 M.P. 39. The court was dealing with “gross negligence” under section 63(1) of the Madhya Pradesh Co-operative Societies Act, 1960. It was observed in that context that “gross negligence” connotes a higher degree of negligence it is negligence not arising merely from some want of foresight or mistake of judgment but from some culpable default. The liability under the section arises when loss is caused by gross negligence and not merely by ordinary negligence. In the absence of a finding that the officer was guilty of “gross negligence”, the order of surcharge was not sustainable.” WP(c).No.15973/09 18 15. The matter received elaborate consideration at the hands of Ratnavel Pandian, J as he then was in Sathyamangalam Co-op Urban Bank Ltd. V. Dy. Registrar of Co-operative Society, 1980(2) MLJ 17. S. 71 of the Tamil Nadu Co-operative Soceities Act 53 of 1961, which is pari materia with S.68 of the Kerala Act was under consideration. Numerous decisoins, English and Indian, which dealt with the words willful default, willful neglect and the like were referred to and discussed. The learned Judges stated as follows. “ The degree of negligence that is contemplated under S.71(1) of the Tamil Nadu Co-operative Societies Act is not mere negligence, but willful negligence. The word `wilful' has not been defined in the Act. `Wilfulness' or ` wantonness' imports premeditation or knowledge and consciousness that an injury or loss is likely to result from the act done or from the omission to act. It imports a constructive intention as to the consequences which, entering into the willful act, the law imputes to the offender and in this way a charge, which otherwise would be mere negligence, becomes by reason of a reckless disregard of probable consequences, a willful wrong. The act done or omitted to be done must be intended or must involve such reckless disregard or security and right as to imply bad faith. In examining whether there is willful negligence, it has to be seen first whether the person concerned is guilty of negligence and if so, whether that negligence is willful and secondly, whether the said willful negligence is the proximate cause of the injury or loss sustained. xxx xxx xxx Having regard to the interpretations and discussions in respect of the term `wilful' appearing I various enactments, as found in the case-law decided by the learned English and Indian Judges which serve as a guide