Case: Uttar Pradesh Co-Operative Federation &amp; Another Vs. State of Uttar Pradesh &amp; Others

meeting remove or expel a member, Rule 59 states that no resolution for removal or expulsion shall be effective unless it is carried by a majority of two thirds of the members present and voting. Rule 63 states that a member of the co-operative society shall cease to be a member inter alia on his removal or expulsion from society or retirement, transfer or forfeiture of all the shares held by him.24. The provisions in the Act and the Rules indicate that the removal can only be under a resolution. There is no provision for automatic cessation of membership. In the absence of a resolution there is no valid removal of co-operative bank from membership.25. In the case of removal of a member the shares of such a member may under Section 23 (3) of the Act be transferred to or acquired or retained by a member. Chapter VI of the Rules consisting of Rules 65 to 82 deals with shares. Rule 82 states that where a member of a co-operative society ceases to be such a member the value of his share or interest in the share capital of the society to be paid to him or his nominee shall be equal to the actual amount paid by the member to the society. These provisions indicate that there is no reduction of the share capital. There was no removal of co-operative banks from the membership of the Federation. There was no resolution to that effect. The shares owned by the co-operative banks are still in existence. These shares have not been yet transferred to any one. The shares have not been transferred to, acquired or retained by any person. The shares still stand in the name of the co-operative banks. The share capital is not reduced. It is therefore not valid on the part of the State Government to reduce the shares worth Rs. 53,000 owned by the co-operative banks, and not to take the same into consideration in calculating the total share capital.26. The other plea of the State Government is that shares worth Rs. 50,000 belonging to the Saharanpur District Co-operative Federation were retired with the result that there was reduction of total share capital by a sum of Rs. 50,000. Retirement of shares is dealt with by rule 66 of the Rules. It is stated in the rule that under Section 23 (3) of the Act a co-operative society may retire the shares of a member in the instances mentioned therein. The fourth instance in Rule 66 is that if a member of a co-operative society has ceased to be a shareholder on account of adjustment of his membership to any other class under Rule 44 (c) or if he has been removed from membership under R. 56 (a), his shares may be retired. Again under Rule 70 a Central Co-operative Society may reduce the share capital according to a scheme approved by the Registrar. Such a scheme may provide for (i) extinguishing or reducing the liability on any of its shares in respect of share capital not paid up, or (ii) cancelling any paid up share capital or (iii) paying back any paid up share capital which is in excess of the needs of the central society.27. The Saharanpur District Co-operative Federation never ceased to be a member. There has been no removal or expulsion. If the Saharanpur District Co-operative Federation is still a member its share money cannot be taken out of share capital fund and treated as security money. Retirement of share money under R. 66 is in four cases. First, if a member at the time of his admission to membership enters into share participation agreement between the society and the member his share may be retired, Secondly, the shares of a member in a salary earning co-operative society in the event of transfer of such member from the area of operation of the society or cessation of his service by virtue of which he held membership of the society may be retired. Thirdly, the shares of a member of a co-operative society organised in educational institutions if the member ceases to be a student or a member of the staff of the institution by virtue of which he was holding membership of the society may be retired. None of these three contingencies of retirement of shares applies to the case of the Saharanpur District Co-operative Federation. The fourth instance mentioned in Rule 66 is the retirement of a member who has been removed from membership or has ceased to be a shareholder on account of adjustment of membership under Rule 44 (c). The District Co-operative Federation, Saharanpur does not fail in this class also.28. The amount of Rs. 50,000 representing the shares of the District Co-operative Federation, Saharanpur was said by the State Government to be kept in security. If the shares were in security the shares remained in specie. It could not be said that the shares were converted by sale into money. Rule 75 forbids hypothecation of shares as security for any loan. It is therefore not open to the State Government to contend that the shares worth Rs. 50,000 belonging to the District Co-operative Federation, Saharanpur were taken off the share capital of the Federation.29.The condition precedent to the exercise of rights of the State Government under Section 34 is that the State Government owns 60 per cent or more of the share capital of the Federation. The entire basis of exercise of right of the Government was that shares worth Rs. 53,000 owned by the Co-operative banks and shares worth Rs. 50,000 owned by the District Co-operative Federation, Saharanpur were no longer part of the share capital. There is no foundation for the State Government to take up that plea. The shares in both the cases are still part of the share capital. The result is that it could not be said that the State Government was justified to exercise right under Section 34 of the Act.30.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]12. It is not necessary to express any opinion on the first three contentions because in our opinion the fourth contention succeeds.The Saharanpur District Co-operative Federation never ceased to be a member. There has been no removal or expulsion. If the Saharanpur District Co-operative Federation is still a member its share money cannot be taken out of share capital fund and treated as security money. Retirement of share money under R. 66 is in four cases. First, if a member at the time of his admission to membership enters into share participation agreement between the society and the member his share may be retired, Secondly, the shares of a member in a salary earning co-operative society in the event of transfer of such member from the area of operation of the society or cessation of his service by virtue of which he held membership of the society may be retired. Thirdly, the shares of a member of a co-operative society organised in educational institutions if the member ceases to be a student or a member of the staff of the institution by virtue of which he was holding membership of the society may be retired. None of these three contingencies of retirement of shares applies to the case of the Saharanpur District Co-operative Federation. The fourth instance mentioned in Rule 66 is the retirement of a member who has been removed from membership or has ceased to be a shareholder on account of adjustment of membership under Rule 44 (c). The District Co-operative Federation, Saharanpur does not fail in this class also.The amount of Rs. 50,000 representing the shares of the District Co-operative Federation, Saharanpur was said by the State Government to be kept in security. If the shares were in security the shares remained in specie. It could not be said that the shares were converted by sale into money. Rule 75 forbids hypothecation of shares as security for any loan. It is therefore not open to the State Government to contend that the shares worth Rs. 50,000 belonging to the District Co-operative Federation, Saharanpur were taken off the share capital of thecondition precedent to the exercise of rights of the State Government under Section 34 is that the State Government owns 60 per cent or more of the share capital of the Federation. The entire basis of exercise of right of the Government was that shares worth Rs. 53,000 owned by the Co-operative banks and shares worth Rs. 50,000 owned by the District Co-operative Federation, Saharanpur were no longer part of the share capital. There is no foundation for the State Government to take up that plea. The shares in both the cases are still part of the share capital. The result is that it could not be said that the State Government was justified to exercise right under Section 34 of the Act.