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

1. The Civil Appeal is by special leave from the judgment dated 8 December, 1970 of the High Court at Allahabad dismissing the petition of the appellants. The appellants in the Allahabad High Court impeached the first order dated 19 September, 1970 passed under Section 34 of the Uttar Pradesh Co-operative Societies Act, 1965 referred to as the Act nominating two thirds of the total number of members of the committee of management of the Uttar Pradesh Co-operative Federation. The appellants are the Uttar Pradesh Co-operative Federation Ltd., Lucknow referred to as the Federation and Veerpal Singh who are both also the petitioners in the writ petition.2. This writ petition is directed against the second order of the Uttar Pradesh State Government dated 26 June, 1971 passed under Section 34 of the Act nominating two thirds of the total number of members of the committee of management of the Federation.3. The question which falls for determination in the writ petition and the civil appeal is whether the State Government under Section 34 of the Act could nominate two thirds of the total number of members of the committee of management of the Federation.4. The annual general meeting of the Federation was held on 30 March 1970. The committee of management of the Federation was elected at the annual general meeting. The appellant petitioner Veerpal Singh on 8 April 1970 was unanimously elected as Chairman of the Federation.5. On 19 September, 1970 the State Government passed an order under Section 34 of the Act and nominated two thirds of the members of the committee of management of the Federation. It may be stated here that under Section 34 of the Act where the share capital subscribed to by the State Government is 60 per cent or more of the total share capital of the co-operative society the State Government shall have the right to nominate up to two thirds of that the total numbers of members of the committee of management. The State Government passed the order on that basis that it had share capital of more than 60 per cent in the Federation.6. The Federation moved the Allahabad High Court against the said order of the State Government. The High Court stayed the operation of the said order nominating two thirds of the members of the committee of management. The High Court dismissed the petition of the Federation on 8 December, 1970. On 18 December, 1970 the State Government cancelled the order dated 19 September, 1970.7. The Additional Registrar, Co-operative Societies, Uttar Pradesh submitted an inspection report to the effect that the State Government had been misinformed about the share capital of the State Government in the Federation. The report stated that in fact the share capital of the State Government in the Federation was never 60 per cent. The report further stated that the matter should be thoroughly investigated and guilty persons should be punished.8. The appellant petitioner Veerpal Singh wrote a letter on 12 June, 1971 to the Chief Minister of Uttar Pradesh and asked for immediate action pursuant to the report of the Additional Registrar of Co-operative Societies. In that letter Veerpal Singh stated that Om Prakash Tyagi, Deputy Registrar, Co-operative Societies had been working as Secretary of the Federation since 1970. Veerpal Singh also stated in the letter that on being elected Chairman he examined the accounts and found that Om Prakash Tyagi had been responsible for mal-practices.9. On 26 June, 1971 the State Government passed the second order under Section 34 of the Act and nominated two thirds of the total number of members of the committee of management of the Federation. After the State Government had passed the said order nominating two thirds of the total number of members of the committee of management the elected members of the committee under R. 38 (b) of the bye-laws of the Federation were removed by draw of lots to accommodate the nominated members. The appellant petitioner Veerpal Singh survived the process of draw by lots and retained his membership of the committee of management of the Federation.10. In the Allahabad High Court the appellants challenged the first order of the State Government dated 19 September, 1970 on inter alia the ground that the share holding of the State Government on facts and in law was not 60 per cent and therefore the State Government was not competent to pass an order under Section 34 of the Act. The Allahabad High Court held that if the appellants denied and disputed facts as to ownership by the State Government of 60 per cent or more of the capital of the Federation the High Court could not normally decide controverted facts and the petition would fail. The High Court however held that the State Government was justified in taking the view that the share holding had crossed the mark of 60 per cent and therefore the order was valid.

Court's reasoning:
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.