Case: Keda Tanaji Aher and Others Vs. State of Maharashtra Through The Secretary and Others

Some of the relevant facts for the purpose of deciding the writ petition are as under :-3. The petitioners claim to be the Board of Directors of the respondent no.4 i.e. Nashik District Central Co-operative Bank Ltd. registered under provisions of the said MCS Act. Section 56 of the Banking Regulation Act, 1949 which was introduced in the year 1966 by way of amendment, made the provisions in the said Banking Regulation Act applicable to the Co-operative Banks with such modification as set out therein.4. It is the case of the respondents that NABARD had examined the affairs of the respondent no.4 bank under Section 35(6) of the Banking Regulation Act, 1949 which refers to its financial position as on 31st March, 2016 and submitted a detailed report along with issues of supervisory concerns. The NABARD was of the opinion that the Board of Directors of respondent no.4 had affected the financial health of the respondent no.4.5. On 29th April, 2017, the office of the Divisional Joint Registrar, Co-operative Societies addressed a letter to the Commissioner for Cooperation and Registrar of Co-operative Societies pointing out the financial irregularities and the loss suffered by the respondent no.4 bank and that the respondent no.4 bank was left with no liquidity and was also not in a position to clear the daily transaction. It was stated that in the larger interest of the members of bank particularly farmers, it was necessary to remove the existing inefficient Board of Directors under Section 110A of the MCS Act and to appoint an Administrator immediately. The Divisional Joint Registrar, Co-operative Societies requested to submit proposal to the Reserve Bank of India (hereinafter referred as RBI) under Section 110A of the MCS Act for removal of the present Board of Directors and appoint an administrator/ administrative board to look after the day-to-day affairs of the respondent no.4.6. On 6th July, 2017, the said NABARD prepared a report and sought opinion of the General Manager of the Additional Chief Secretary, Corporation, Government of Maharashtra requesting the Government to advice the respondent no.4-bank to augment capital funds to achieve 9% CRAR, reduce NPAs, ensure KYC/AML compliance etc to improve the financial position and methods of operation in a time bound manner. The NABARD also requested to nominate NABARD and Maharashtra RO, Pune about the action proposed to be taken in the matter. A copy of the said opinion was also sent to the Reserve Bank of India (for short RBI), the Registrar of Co-operative Societies and the Managing Director, the Maharashtra State Co-operative Bank Ltd. and also to respondent no.4.7. On 12th July, 2017, the office of the Commissioner for Cooperation and Registrar of Co-operative Societies, Maharashtra State addressed a letter to the RBI pointing out the report submitted by NABARD and stating that in order to secure proper management of the respondent no.4 and to protect the interest of the depositors as well as that of the bank, it was necessary to prevent further deterioration in the financial position of the bank and that the Board of Directors of the respondent no.4 bank was required to be superseded under Section 110A (iii) of the MCS Act as proposed by the Divisional Joint Registrar, Pune.8. On 11th October, 2017, the NABARD addressed a letter to the RBI and pointed out the financial irregularities committed by the respondent no.4 and recommended the RBI to consider recommending the Government of Maharashtra for supersession of the Board of Directors of the respondent no.4 under Section 110A(iii) of the MCS Act. The RBI was also requested to consider recommending the Government of Maharashtra for constitution of a Board of Administrators to look into the affairs of the respondent no.4.9. On 19th December, 2017, the RBI passed an order stating that in the public interest and for preventing the affairs of respondent no.4 bank being conducted in a manner detrimental to the interest of the depositors and for securing the proper management of the said bank required the Commissioner for Corporation and Registrar, Co-operative Societies, Maharashtra State to make an order for supersession of the Board of Directors of the respondent no.4 and for appointing Board of Administrators, in terms of the provisions of sub-section (1)(iii) of Section 110A of the MCS Act.10. On 27th December, 2017, the RBI passed an order and addressed a letter to the Commissioner for Co-operation informing of Cooperative Societies, Government of Maharashtra informing that having examined the financial position of the said bank and other relevant factors as pointed out by NABARD in its inspection report pursuant to the financial position as on 31st March, 2016 and unaudited financial position as on 31st March, 2017. The RBI enclosed a requisition dated 19th December, 2017 from its Director for supersession of the Board of Directors of respondent no.4 and for appointment of Board of Administrators and directed the Registrar, Co-operative Societies for necessary action under Section 110A(1)(iii) of the MCS Act.11. On 29th December, 2017, the Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State, Pune passed an order as per the directives issued by RBI under Section 110A(1)(iii) of the MCS Act thereby superseding the then Board of Directors of the respondent no.4 and appointing Shri Milind Bhalerao, Divisional Joint Registrar, Co-operative Societies, Nashik as Administrator in place of the Board of Directors to manage the affairs of the bank. By the said order, the Administrator was directed to take the charge immediately till further order. It was made it clear that during the said period, Administrator shall take corrective measures in the working of the said bank. The said order dated 29th December, 2017 passed by the Commissioner for Co-operation and Registrar of Co-operative Societies is impugned by the petitioners in this writ petition.

Court's reasoning:
58. It is an undisputed fact that the RBI vide letter dated 27th December, 2017 to the Commissioner for Co-operation and Registrar of Co-operative Societies, Government of Maharashtra had issued the directives for supersession of the Board of Directors of the respondent no.4 bank and to appoint a Board of Administrators in terms of provisions of Section 110A (1)(iii) of the MCS Act. A perusal of the said directives indicates that the RBI had examined the financial position of the respondent no.4 bank and other relevant facts brought by the NABARD in its inspection report in respect of the financial position of the respondent no.4 as on 31st March, 2016 and unaudited financial position as on 31st March, 2017. Along with the said letter, the RBI had enclosed a requisition dated 19th December, 2017 from the Executive Director of the RBI for supersession of the Board of Directors of respondent no.4 and for appointment of Board of Administrators.59. It is not in dispute that though the petitioners have impugned the order dated 29th December, 2017 passed by the Commissioner for Cooperation and Registrar of Co-operative Societies, superseding the Board of Directors of the respondent no.4 bank and appointing Shri Milind Bhalerao, Divisional Joint Registrar, Co-operative Societies, Nashik as Administrator, the petitioners have not impugned the said directives issued by the RBI dated 27th December, 2017. In our view, the petitioners thus cannot be allowed to urge across the bar that the powers of RBI to issue the directives under Section 110A(1)(iii) of the MCS Act were not justified or had no such powers at all. It is also not in dispute that pursuant to the said order dated 29th December, 2017 passed by the Registrar, Co-operative Societies, the administrator appointed by the learned Registrar, Co-operative Societies has already taken charge. However, the said order was stayed by this Court by an order dated 6th February, 2018 until further orders.64. A perusal of the amended Section 110A(1)(iii) clearly indicates that by amending Act Mah.16 of 2013 dated 13th August, 2013, section 67(a)(i) w.e.f. 14th February, 2013, the then words for the supersession (removal) of the Board of Directors and the appointment of an Administrator therefor for such period or periods, not exceeding five years in the aggregate, as may from time to time be specified by the Reserve Bank of India, and the Administrator so appointed shall, after the expiry of his term of office, continue in office until the day immediately preceding the date of the first meeting of the new Board of Directors are substituted by the words For suspension or supersession of the Board of Directors, as the case may be, and the appointment of an administrator in its place for such period, not exceeding one year.65. A conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) referred to aforesaid would clearly indicate that the period of five years originally prescribed under the said provision was substituted by a period of not exceeding one year in conformity with the period of one year period under Article 243 ZL of the Constitution of India. The constitutional validity of the said amendment carried out in the year 2013 in Section 110A(1)(iii) of the MCS Act has been admittedly not challenged by the petitioners on any ground in this petition.66. We are not inclined to accept the submission of the learned senior counsel for the petitioners that there is repugnancy in Article 243 ZL of the Constitution of India and Section 110A(1)(iii) of the MCS Act. The view thus taken by the Honble Supreme Court and this Court in various judgments referred to aforesaid relied upon by both the parties on the issue whether the RBI having once issued directives under Section 110A(1)(iii) of the MCS Act to the Registrar, Co- operative Societies are mandatory and are required to be followed by the Registrar, Co-operative Societies are applicable to the facts of this case and are binding on this Court. This Court after adverting to the aforesaid judgment in case of Arun T. Dhumale and Ors. v/s. State of Maharashtra and Ors. in Writ Petition (Stamp) No. 95405 of 2020 and in other companion matters, has held that the Registrar, Co-operative Societies is bound by the directives issued by the RBI under Section 110A(1)(iii) of the MCS Act and cannot refuse to abide such directives.67. In our view, there is no substance in the submission of the learned senior counsel for the petitioners that in view of the amendment to Section 110A(1)(iii) of the MCS Act brought into the effect w.e.f. 14th February, 2013. The Registrar, Co-operative Societies was required to issue a show-cause notice followed by personal hearing to the petitioners before passing order of suspension of the Board of the Directors and before appointing the sole administrator in respect of the affairs of respondent no.4 bank. In our view, the principles of law laid down by the Honble Supreme Court and this Court would apply even post amendment to Section 110A(1)(iii) of the MCS Act. In our view, the judgment delivered by a learned Single Judge of this Court in case of Namdeo Natha Sanap (supra) which is delivered post amendment to Section 110A(1)(iii) of the MCS Act also applies to the facts of this case. We do not propose to take any different view in the matter.68. In our view, the order passed by the Registrar, Co-operative Societies is an executive and administrator order, which was passed so as to comply with the mandatory directives issued by the RBI and was thus not a quasi-judicial order. The Registrar, Co-operative Societies was thus neither required to issue any show-cause notice nor to grant any personal hearing to the petitioners before passing the impugned order.69. There is no merit in the contention raised by the learned senior counsel for the petitioners that the Registrar, Co-operative Societies had discretionary power to suspend the Board of Directors of the respondent no.4 bank even if the RBI had directed to supersede the Board of Directors of the respondent no.4 bank, in view of the words as the case may be in Section 110A(1)(iii) of the MCS. A perusal of Section 110A(1)(iii) of the MCS Act clearly indicates that if it is required by the RBI in public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of the bank, the discretion vests in the RBI to pass an order or directives against the Registrar, Co-operative Societies either for suspension or supersession of the Board of Directors, as the case may be. Such discretion under the said provision does not vest in the Registrar, Co-operative Societies either to suspend or supersede the Board of Directors upon receipt of such directives from the RBI under the said provision. In our view, the submission made by the learned senior counsel is ex-facie contrary to the plain reading of the said provision i.e. Section 110A(1)(iii) of the MCS Act and also the principle of law laid down by the Honble Supreme Court and this Court in catena of decisions referred to aforesaid.70. Insofar as the submission of the learned senior counsel for the petitioners that the amendment to Section 110A(1)(iii) of the MCS Act substituting the period of 5 years by 1 year was not in compliance with or in conformity with Article 243 ZL of the Constitution of India is concerned, in our view there is no merit in this submission. The said amendment is in conformity with and in compliance with the Article 243 ZL of the Constitution of India and not repugnant thereto. The Registrar, Co-operative Societies was thus not bound to issue any show-cause notice followed by the personal hearing to the petitioners. Since, this Court is of the view that there is no repugnancy in the provisions of the Article 243 ZL and Section 110A(1)(iii) of the MCS Act, Article 243 ZL of the Constitution of India does not prevail over the Section 110A(1)(iii) of the MCS Act.71. In our view, there is no infirmity in order passed by the Registrar, Co-operative Societies in appointing sole administrator. Be that as it may, the appointment of a sole administrator made by the Registrar, Co-operative Societies cannot be set aside on the ground that the RBI had directed the Registrar, Co-operative Societies to appoint Board of Administrators. The learned senior counsel initially urged before this Court that the RBI did not have any power under the provisions of the Banking Regulation Act, 1949 being the parent Act to direct the Registrar, Co-operative Societies to supersede or suspend the Board of Directors and to appoint Board of Administrators. However, in his arguments in rejoinder he urged that the RBI having powers under the provisions of the parent Act i.e. Banking Regulation Act, 1949, could not have exercised powers under Section 110A(1)(iii) of the MCS Act. Be that as it may, the respondent no.4 bank being a Central Cooperative Bank, Mr. Dhond, learned senior counsel for the RBI is right in his submission that the RBI is empowered to exercise powers under Section 110A(1)(iii) of the MCS Act to issue such directives to the Registrar, Co-operative Societies to supersede the Board of Directors of such bank and to appoint the Board of Administrators or sole administrator in respect of the affairs of such bank.72. There is no merit in the submission of the learned senior counsel for the petitioners that the Registrar, Co-operative Societies was bound to follow the procedure prescribed under Section 102 of the MCS Act while superseding the Board of Directors of the respondent no.4 bank or while appointing a Board of Administrators. In our view, under Section 110(A)(1)(iii) of the MCS Act the Registrar, Co-operative Societies is bound to comply with the directives issued by the RBI under the said provisions and has no discretion. The order passed by the Registrar, Co-operative Societies to supersede or suspend the Board of Directors in compliance with the directives issued by the RBI is an administrative or executive order.73. The Registrar, Co-operative Societies is empowered to pass an order of winding up of such co-operative bank, if after an enquiry has been held under Section 83 or inspection made under Section 84 or 89A or on the report of the Auditor auditing the account of such society or on the compliance with the requirements made therein or on happening of contingencies set out therein. The powers of the Registrar under Section 102 of the MCS Act cannot be equated with the duty of the Registrar, Co-operative Societies to comply with the directives issued by the RBI under Section 110A(1)(iii) of the MCS Act. Both the provisions operate in different fields and in different circumstances and cannot be mixed up with each other. In our view, the Registrar, Cooperative Societies is thus not bound to follow the procedure prescribed under Section 102 of the MCS Act while complying with the duties under Section 110A(1)(iii) of the MCS.74. The judgment of the Honble Supreme Court in case of Vipulbhai M.Chaudhary (supra) would not apply to the facts of this case in view of there being no repugnancy between Article 243ZL and section 110A of the MCS Act. The reliance placed by the learned senior counsel on the said judgment is thus misplaced. There is no substance in the submission of the learned senior counsel that the State Government did not carry out any corresponding amendment in line with the Article 243ZL in section 110A or in any other provision of MCS Act.75. In our view, Mr. Dhond, learned senior counsel for the RBI is right in placing reliance upon Section 56(zb) and 56(za) in support of the submission that in case of Multi State Co-operative Bank, the RBI is empowered to exercise the powers under Section 110A(1)(iii) of the MCS Act in directing the Registrar, Co-operative Societies in superseding or suspending the Board of Directors of such Multi State Co-operative Bank and in case of Single State Co-operative Society, RBI has no power under the provisions of the MCS Act to supersede the Board of Directors of such a co-operative bank. The RBI in such circumstances has to call upon the Registrar, Co-operative Society to supersede the Board of Directors of such bank in case of public interest or on satisfying various circumstances set out under Section 56 of the Banking Regulation Act.76. Under section 38(1)(b) read with Section 37 of the Banking Regulation Act, if any application for winding up of the banking company is made by the RBI before the High Court, the High Court is bound to pass an order of winding up of such banking company. Even the High Court in that event has no discretion not to pass an order of winding up. Similar power is prescribed under section 110A(1)(iii) of the MCS Act in the RBI to direct the Registrar, Co-operative Societies to supersede or suspend the Board of Directors of a Co-operative Bank.77. In this case, since there was no Government shareholding or loan or financial assistance or any guarantee issued by the Government insofar as the respondent no.4 is concerned, the second proviso to Article 243 ZL of the Constitution of India would not apply. In the fourth proviso it is provided that in case of a co-operative society, other than a multi-State co-operative society, carrying on the business of banking, the provisions of that clause shall have the effect as if for the words six months, the words one year had been substituted. The embargo under the Article 243 ZL that no board shall be superseded or superseded for a period exceeding 6 months will have to be read with the proviso under the said Article and the said period of six months would not apply if any of the ground under the first proviso was attracted. The provisions of the Banking Regulation Act are preserved by virtue of the said third proviso to Article 243 ZL of the Constitution of India and does not affect the power of the RBI to take any action under the provisions of the Banking Regulation Act or under section 110A(1)(iii) of the MCS Act.78. In our view, the learned Advocate General appearing for the State of Maharashtra is right in his submission that the option granted under Section 110A(1)(iii) of the MCS Act to suspend or supersede the Board of Directors of an insured co-operative bank vest with the RBI only and not with the Registrar under Section 110A(1)(iii) of the MCS Act. In our view, the word shall in Section 110A(1)(iii) would clearly indicate that the Registrar, Co-operative Societies is bound to comply with the directives of the RBI and mandatorily.79. Mr.Godbole, learned counsel for he respondent nos. 6 to 9 is right in his submission that the amendment carried out by the State Government to Section 110A(1)(iii) of the MCS Act in the year 2013 is in conformity with the provisions of Article 243 ZL of the Constitution of India and is in tune with fourth proviso to Article 243 ZL of the Constitution of India. Learned counsel for the respondent nos. 6 to 9 rightly placed reliance on the judgment of Supreme Court in case of Joseph Kuruvilla Vellukunnel (supra) in support of his submission that the word shall denotes that powers of RBI, directives issued by the RBI to the Registrar, Co-operative Societies are mandatory and not directory.80. Under section 36AA of the Banking Regulation Act, the RBI is empowered to remove managerial and other persons from office in the pubic interest or for preventing the affairs of a banking company being conducted in the manner detrimental to the interests of the depositors or for securing the proper management of any banking company.81. In our view, learned counsel for the respondent nos. 6 and 9 is right in placing reliance on sections 152 and 154 of the MCS Act in support of the submission that the order passed by the Registrar, Cooperative Societies following the directives issued by the RBI was not required to be passed without issuing any show cause notice or rendering any personal hearing and thus was rightly not made appealable under section 152 of the MCS Act. Neither any revision application can be filed against the said order under Section 154 of the MCS Act nor any such powers can be exercised by the State Government or any authority mentioned therein.82. Learned counsel rightly placed reliance on the judgment of the Honble Supreme Court in case of Ganesh Bank of Kurundwad Ltd. and Ors. (supra) in support of the submission that the RBI having granted sufficient opportunities to the respondent no.4 to improve its financial position and the respondent no.4 not having complied with those directions issued by the RBI, this Court cannot substitute its judgment for that of RBI. Neither it is pleaded by the petitioners that the order passed by the Registrar, Co-operative Societies was passed with malafide intention nor the same has been demonstrated before this Court.83. In our view, since order passed by the Registrar, Co-operative Societies is in mandatory compliance with the directives issued by the RBI to supersede or suspend the Board of Directors of the respondent no.4 bank by the Co-operative Societies, this Court cannot interfere with such order passed by the Registrar, Co-operative Societies. The Registrar, Co-operative Societies has not acted as a rubber stamp of the RBI. Be that as it may, the petitioners have not made out any case for warranting interference with the order passed by the Registrar, Cooperative Societies. Writ petition is devoid of merit.