1. A few legal questions which arise for consideration in this second appeal, in context with Section 70 of the U.P. Cooperative Societies Act. 1965, hereinafter referred to as the Act, are as to what constitutes a dispute relating to the business of a society as may be referable to the arbitration, and further as to whether an auction-purchaser of property in proceedings for realisation of dues standing against a member of the society would be a stranger to the arbitration proceedings or he would be one claiming through a member of the society. Yet another question is about notice which is required to be given under Section 117 of the Act to a cooperative society, before filing a suit in the Court of law.
2. Brief facts necessary for appreciating the questions which have arisen for consideration, are that plaintiffs Shri Pal and Siyaram had taken loan of Rs. 1200/- from Rajya Sahakari Vikas Bank, Barabanki on 21-12-1965, pledging some plots of land, situate in village Shahpur, Pargana Deva, Tahsil Nawabganj, District Barabanki in security. It appears that the loan could not be repaid, hence a demand notice was served on Shri Pal demanding an amount of Rs. 1786/-, in realisation whereof the land of the appellants was auctioned in June, 1974 and it was also confirmed around the same period. Plaintiffs Shri Pal and Siyaram filed a suit for cancellation of the sale-deed which was executed in favour of respondent No. 2. It may be mentioned here that respondent No. 2. Chhote Lal transferred the land to respondents Nos. 3 to 6. A number of pleas were raised by the parties which gave rise to nine issues framed by the trial Court in two stages, which may be quoted as below:
(1) Whether the sale deed dated 27-11-1974 executed by defendant No. 1 in favour of defendant No. 2 in auction sale dated 3-6-1974/3-7-1974, is liable to be cancelled If so, its effect ?
(2) Whether the suit is undervalued and the Court fee paid is insufficient ?
(3) Whether the suit is bad for misjoinder of plaintiffs?
(4) To what reliefs, if any, arc the plaintiffs entited ?
(5) Whether the suit is undervalued and the Court fee paid is insufficient? (sic)
(6) Whether this Court has no jurisdiction to entertain the suit as alleged in Para 10 of written statement filed by defendant No. 1 ?
(7) Whether the suit is barred by the provisions of Land Mortgage Bank Act ?
(8) Whether the suit is bad for want of notice under Section 117 of the U.P. Co-operative Societies Act ?
(9) Whether defendant No. 1 realised a sum of Rs. 5025/- by sale of crops of plaintiffs as alleged in Para 4-A of the plaint ?
Issues No. 6, 7 and 8 raise issues of legal nature. Issue No. 6 relates to the plea of the defendants that the suit was nol maintainable in the Civil Court, since the dispute was covered by Section 70 of the Act. According to the defendants, the dispute relates to the business of the co-operative society, hence an arbitration would lie under the provisions of Sections 70 and 71 of the Act. The trial Court held that the matter was referable to the arbitration under Section 70 of the Act, hence suit was barred under the provisions of Section 111 of the Act. So far as issue No. 8 was concerned, it related to two-months notice prior to institution of a suit againsl a co-operative society as provided under Section 117 of the Act. This issue was decided in favour of the defendants and against the plaintiffs. Issue No. 7 was also decided in favour of the defendants whereby holding that in view of the provisions contained in Section 19 of the U.P. Co-operative Land Development Bank Act, a suit for damages alone would lie and the auction could not be challenged. It may also be mentioned here that on the basis of amended plaint, by inserting Para 4-A in the plaint, giving rise to issue No. 9 was also dealt with by the trial Court, and it was held that the crop of the appellants was sold and a sum of Rs. 5025/- was realised by the defendant Bank. It may nol he relevant to mention here about the findings recorded on all the issues framed in the case. On the basis of the findings, however, recorded by the trial Court on differenl issues, the suit was dismissed by the judgment and order dated May 30. 1976.
3. Aggrieved by the judgment of the trial Court, the appellants preferred a first appeal, which too, was dismissed by the 1st Appellate Court by judgment and order dated 12-12-1978. The appellate Court upheld the finding of the trial Court about the bar of the suit as well as about the notice under Section 117 of the Act. So far the question of payment of Rs. 1786.59 p. by the plaintiffs and having obtained receipt of the same was concerned, that was not accepted by the 1st Appellate Courl and the case of the plaintiffs in that regard had been found to be without force and the document which was relied upon by the plaintiffs was held to be suspicious. Thus the finding of the trial Court in respcel of that matter had also been upheld. So far as the sale of the crop worth Rs. 5025/- was concerned, the 1st Appellate Court observed that no such issue was framed; therefore, lhat aspect could not be looked into in appeal. This is how the appeal also stood dismissed.
4. I have heard the learned counsel for the appellants Shri K. B. Sinha and Shri R. N. Tilhari on behalf of the respondcnls Nos. 2 to 6.
5. First of all, it has been submitted on behalf of the appellants that the trial Court had come to a conclusion that the crop of the appellants was sold for a sum of Rs. 5025/- which was evident from a receipt paper No. Ga-58 ascribed by one Harishchandra on 3-6-1974 witnessed by two witnesses. One Dayal is purported to have put his signature on revenue stamp. This document was kept in sealed cover, which has been opened and placed before the Court. There is an endorsement on it dated 28-5-1977 to the effect that this document was proved by DW-2. The document contains a recital to the effect that Dayal had purchased ihe crop of the appellants for a sum of Rs. 5025/- which was auctioned by the Bank in realisation of dues against Sripal and that he had paid the amount to the Manager of the Bank and he had taken away the crop. In this connection, it is submitted that once it stands proved that crop of the appellant was sold by the Bank and Ihc dues stood recovered, the property of the appellants could not be sold for realisation of the same dues.
6. Learned counsel for the respondents has, however, submitled that Dayal, who is supposed to have purchased the crop, has not been pro-duced, nor the other witnesses of the alleged receipt: only Harishchandra has been produced who is said to be the scribe of the receipt. It is further submitted that neither any other document regarding the alleged auction of the crop by the Bank was filed, nor summoned by the plaintiff appellants. Learned counsel for the appellants submits that the first appellate Court should have gone into that question since it was dealt with by the trial Court and it was very well covered under issue No. 9; therefore, the observation of the first appellate Court that there was no such issue, was wrong, and the case on the said issue at least is liable to be remanded to the first appellate Court for recording its finding,
7. In connection with the above submission, in my view, it would not be necessary to go into its merit unless the finding regarding the maintainability of the suit is first considered and if it is found that the suit is maintainable, it is then alone that there would be any occasion to consider the merits of the case. It would, therefore, be appropriate to proceed to consider the legal arguments which have been raised on behalf of the parlies.
8. The first question which may be considered is in regard to Section 70 of the Act, the relevant part of which reads as under:--
'70. Dispute which may be referred to arbitration.-- (1) Notwithstanding anything contained in any law for the lime being in force, if any dispute relating to the constitution, management or the business of a co-operative society other than a dispute regarding disciplinary action taken against a paid servant of a society arises-
(a) among members, past members and person claiming through members, past members and deceased members; or
(b) between a member, past member or any person claiming through a member, past member or deceased member, and the society, its committee of management or any officer, agent or employee of the society, including any past officer, agent or employee; or
(c) between the society or its committee and any past committee, any officer, agent or employee or any past officer, past agent of past employee or the nominee, heir or legal representative of any deceased officer, deceased agent, or deceased employee of the society: or
(d) between a co-operative society and anyother co-operative society or societies;
such dispute shall be referred to the Registrar for action in accordance with the provisions of this Act and the rules and no Court shall have jurisdiction to entertain any suit or olher proceeding in respect of any such dispute:
Provided that a dispute relating to an election under the provisions of this Act or rules made thereunder shall not be referred to the Registrar until after the declaration of the result of such election.
(2) For the purposes of sub-section (1) the following shall be deemed to be included in dispute relating to the constitution, management or the business of a co-operative society, namely-
(a) claims for amounts due when a demand for payment is made and is either refused or not complied with whether such claims are admitted or not by the opposite party;
(b) a claim by a surety against the principal debtor where the society has recovered from the surety any amount in respect of any debt or demand due to it from the principal debtor as a result of the default of the principal debtor or whether such debt or demand is admitted or not;
(c) a claim by a society for any loss caused to it by a member, officer, agent, or employee including past or deceased member, officer, agent, or employee, whether individually or collectively and whether such loss be admitted or not: and .
(d) all matters relating to the objects of the society mentioned in the bye-laws as also those relating to the election of office bearers.
(3) .....'
9. From the provision quoted above, it is clear that if any dispute arises relating to the constitution, management or the business of a co-operative society, between a memberand the society or its committee of management or any officer, or between any person claiming through a member and the society, such dispute is referable for adjudication to arbitration. On behalf of the appellants, it has been strenuously urged that the dispute in the present case does not relate to the constitution, management or the business of a cooperative society, hence it would not be referable to arbitration. There seems to be no dispute or controversy about the fact that the dispute doesnot relate to the constitution or management of the co-operative society. If at all, it would tall under the category of a dispute relating to the business of the co-operative society. In the present case, as we have noted earlier, the defendant-respondent No. 1 had advanced loan to the plaintiff appellants. The dispute relates to the default made in the repayment and the consequent auction of the property given in security of the loan.
10. Learned counsel for the appellants has submitted that the phrase business of a society is to be interpreted in a narrow sense, as held by the Hon'ble Supreme Court in the case reported in : [1969]1SCR887 . Deccan Merchants Co-operative Bank Ltd. v. M/s. Dalichand Jugraj Jain. The attention of the Court has particularly been drawn to the observations made in para 17 of the decision which are to the effect, 'In this subsection the word 'business' has been used in a narrower sense and it means the actual trading or commercial or other similar business activity of the society which the society is authorised to enter into under the Act and the Rules and its bye-laws.' According to the appellants, narrow construction would mean that if there is a transaction of commercial or other similar business activity or actual trading by the society, that alone would be covered by the terms 'business of a society'. Its meaning and import cannot be widened by stretching the scope of the provision.
11. Learned counsel appearing on behalf of the respondents submits that the dispute in the present case would definitely be adispute relating to the business of the society. In this connection, he has drawn the attention of the Court to Section 2, Clause (c) of the U.P. Co-operative Land Development Banks Act, 1964, which defines 'Land development Bank' or 'co-operative landDevelopment Bank' as follows:
'2(c) 'Land development bank' or 'co-operative land development bank' means a cooperative society registered under the Co-operative Societies Act for the time being in force in Uttar Pradesh, admitted as a member of the State Land Development Bank, and having as its mainobject the advancement of loans to its members on the mortgage of or charge on immovable property, or against the unconditional guarantee of the State Government generally for improvement if land and other productive purposes connected with agriculture :'
On the basis of the above provision, it is submitted that the object of establishment of a bank or incorporation of a co-operative society under the U.P. Co-operative Land Development Banks Act is to advance loans to its members for purposes connected with development of their agricultural activity. It may be observed that in the decision of Deccan Merchants Co-operative Bank : [1969]1SCR887 (supra), the Hon'ble Supreme Court has made an observation that the activity should be a trading or commercial or other similar business activity. It is, therefore, clear that the activity of the society, which it is authorised to enter into, is to advance loans to its members. It has been noted earlier that Clause (c) of Section 2 of the U.P. Cooperative Land Development Banks Act, 1964 itself provides for advancement of loans by the: society to its members. That being the position, there seems to be no difficulty in coming to the conclusion that the advancement of loans by the society to its members and repayment of the same do relate to the business of the society and any dispute arising out of the same would be a dispute relating to the business of the society. In this connection, the observations made by the Hon'ble Supreme Court in the case of Deccan Merchants Co-operative Bank : [1969]1SCR887 (supra) in Para 18 of the judgment would further clarify the position, where it has been observed that the dispute relating to the business of a society would be dependent upon the nature of the society and the rules and bye-laws governing it and ordinarily, if a society owns buildings and lets out pans of buildings to any of ils members which it does not require for its own purposes, such a letting cannot be said to be the businessof society. But, where a society carries on business of constructing and buying houses and letting them out to its members, such letting out to its members would be a part of its business.
12. Learned counsel for the respondents, in this connection, as to what amounts to 'touching the business of the society', has taken pains to place reliance upon certain old decisions, a reference of which may also be made here. The first case is reported in, AIR 1936 Patna 225. Madhusudhan Das v. Muthurananda Das. The matter related to loans advanced by the Cooperative society to ils members which was held to be the matter touching the business of society and it was particularly observed that the disputedliability of a member to repay money due to the society is a dispute touching the business of the society.
13. The next case relied upon is reponed in AIR 1940 Sind 143, Fakir Mahomed Dadu Mahomed v. Mercantile Co-operative Bank Ltd. In this case, the subject-matter of dispute was sale of the property by the society in realisation of dues on account of a loan advance. It was held to be a matter relating to the business of ihe society.
14. Yet another case relied upon is reported in AIR 1946 Nagpur 16, Kisanlal v. Co-operative Central Bank Ltd. wherein it has been observed that any business which is transacted by the society which, it is empowered under the law to carry out, and every other act essential for such functions, would be a matter concerning the business of the society.
15. Another decision of our own High Court relevant on the point is reported in : AIR1953All465 , Damodar Das v. Co-operative Seeds Store. In this case, the dispute related to imposition of penalty on the member who had not returned the grain borrowed from the society within the lime, though ihe time, according to the member, was extended. It was held by the Division Bench that such a dispute would be a matter relating to the business of the society.
16. Another decision on the point is reported in, 1984 All LJ 470, Ram Kripal v. Dori Lal. In that case also, the question under consideration was as to whether the dispute in that case was one relating to the business of the society or not. The plaintiff and deposited some money with the society. In turn. he was allotted an account number. The allegation was that the money was withdrawn from his account illegally by the employees of the sociely in collusion with the society. It was held that such facts constitute a dispute relating to business of the society and thus the jurisdiction of the Civil Court was ousted.
17. Shri K.B. Sinha, learned counsel for the appellants has cited another decision reported in AIR 1982 SC 120. Allahabad Dist. Co-op. Ltd. v. Hanuman Dutt Tewari, to show that decision of the Hon'ble Supreme Court in Deccan Merchants Co-operative Bank case : [1969]1SCR887 (supra), was followed later in this case also.
18. In connection with the above, it may beobserved that the decision of the Hon'ble Supreme Court in Deccan Merchants Co-operative Bank case (supra) has already been dealt with in the earlier part of this judgment at some length.
19. What seems to be important is to find out as to whether the dispute has arisen out of a transaction, which relates to the main functions performed by the society or not. Main function of a co-operative society and the nature of function and the transaction will be the deciding factors. It is in this view of the matter that it is found that the advancement of loans to its members by the respondent No. 1 society and disputes arising in realisation of the amount due, is a mailer relating to the business of the society. Hence subject-matter of such a dispute will be covered by Section 70 of the Act.
20. What has been found above may alone be not sufficient for a reference to arbitration. The dispute has to be between the member, past members and the society or the officers of the sociely or between one claiming through a member of the society and the society and its officers. According to the learned counsel for the appellant, the auction purchaser being a stranger and not a member of the sociely, the dispute will be out of purview of arbitration proceedings under Section 70 of the Act as no dispute between the sociely and a stranger is referable nor can be decided by the Registrar or his nominee as arbitrator. Looking to the bare provision in the regard, there can be hardly any dispute about the said proposition. It is, however, to be seen as to whether the parties involved in the present case are those who are members alone or there is a stranger in the proceedings. So far the plaintiff appellants and the respondent No. 1, namely, the U.P. RajyaSahakari Vikas Bank are concerned, there is hardly any doubt that the dispute is between the members and the sociely. The doubt, however, arises in respect of the auction purchaser, namely, respondent No. 2 as also in respect of respondents Nos. 3 to 6 to whom the property had been transferred by him. It is nobody's case that they are members of the society.
21. The question to be considered is as to whether respondents Nos. 2 to 6 could be said to be the persons claiming through the members of the society, namely, the appellants or not. Learned counsel for the appellants Shri K. B. Sinhu urged that they cannot be said to be the persons claimingthrough the members, since they have derived their title through a public auction which has been held by respondent No. 1, therefore, they would be stranger to the proceedings. Shri R.N. Tilhari appearing for the respondent has placed before the Court two decisions on the point. One of such decisions is reported in : AIR1989SC81 . M/s. A.V.R. and Co. v. Fairfield Co-operative Housing Society Ltd. It appears that the Housing Cooperative Society had granted licence of the premises to one of its members who. in turn, had passed on the possession to another against the provisions contained under the rules and the bye-laws. The plea which was raised was that the person in possession, not being a member of the society, could not be subjected to arbitration proceedings, hence the award was not binding and the same was illegal. The contention that the person in possession was not claiming through the member/licencee, was repelled. The other decision is reported in : [1982]3SCR607 , O.N. Bhatnagar v. Smt. Rukibai Narsindas. In this case, the stranger was permitted possession by the member. It was held that the stranger would become a nominal member of the society upon revocation of licence. Thus the proceedings would fall within the purview of the provision for arbitration.
22. It is to be noticed that in both the cases noted above, the stranger had come into possession of the property which was delivered to him by the licensee member. Thus whatever claim the stranger could raise, would be only through the member. There was no conflicting interest between the member and the stranger to whom he had passed on the possession. The cases ciled above, therefore, would not apply to the facts of the present case.
23. The position of an auction purchaser would be different. It is true, an auction purchaser derives the title of the judgment debtor, but it would not be possible to say that such a person claims title through the judgment debtor. There is intervention of the legal process under which the auction is held through a public notice, where any member of the public is entitled to bid and participate in the auction and acquire title. There is no volition at any stage, between the auction purchaser and the holder of the title nor there is any consensus between them at any point of time. The auction purchaser gets the title quite independentof the original holder and normally their interest becomes adverse to each other, more particularly where the sale is challenged by the owner, as is the case in hand. Property of the appellants has been sold and title has passed on to the respondents by intervention of act of public auction held by ihe Bank. The appellants have challenged the validity and legality of sale proceedings on various grounds. Their inlerest. namely, the interest of the appellant owners and that of the auction purchaser has become adverse to each other. In the above circumstances, it cannot be said that the auction purchaser claims title through the judgment debtor or through the original holder of the property. Neither of the two had any control over auction proceedings.
24. Shri R.N. Tilhari has also very fairly ciled a decision, reported in. (1881) 8 Ind App 65 Dinedranath Sanyal v. Ramcoomar Ghose. The relevant observations are to be found at Page 75 to the following effect:
'There is a great distinction between a private sale in satisfaction of decree and a sale in execution of decree. In the former the price is fixed by the vendor and purchaser alone; in the laiter the sale must be made by public auction conducted by a public officer, of which notice must be given as directed by the Act, and at which the public are entitled to bid. Under the former the purchaser derives title through the vendor, and cannot acquire a belter title then that of the vendor. Under the latter the purchaser, notwithstanding he acquires merely the right, title, and interest of the judgment debtor, acquires that title by operation of law adversely to the judgment debtor, and freed from all alienations or incumbranccs effected by him subsequently to the attachment of the properly sold in execution.'
25. From the above observations too, it isclear that in the present case, the auction purchaser cannot be said to be claiming title through the appellants. The auction purchaser will be a stranger; therefore, proceedings would be out of the purview of arbitration. In this view of the matter, the arbitrator will have no jurisdiction to enterlain the dispute and bar of Sections 70 and 111 of the Act would not apply. The findings recorded by the Courts below to the contrary are, therefore, set aside.
26. Another question that remains to be de-cided is in regard to Section 117 of the Act, which reads as follows;
'117. Notice accessary in suits. -- No suit shall be instituted against a co-operative society or any of its officers in respect of any act relating to the constitution, management or the business of the society until the expiration of two months next after notice in writing has been delivered to the Registrar, or left at his office, stating the cause of action, the name, description and place of residence of the plaintif and and the relief which he claims; and the place of residence of the plaintiff and the relief which he claims; and the plaint shall contain a statement that such notice h;is been so delivered or left.'
27. A perusal of the above provision shows that like Section 80, C.P.C. a notice is required to be given two months prior to institution of suit against a co-operative society if the dispute relates to the constitution, management or the business of the society. It has already been held in the earlierparl of this judgment that the dispute in the 'present case relates to the business of the cooperative society, namely, Ihc Bank respondent No. 1. That being the position, it was mandatory on the part of the plaintiff appellants to give notice under Section 117 of the Act to respondent No. 1. It is difficult to accept the contention raised in this behalf by the learned counsel for the appellants that in any case, the suit would be bad against the society and Ihc proceedings shall still hold good so far they relate to other parties, it is submitted that the relief has been sought for cancellation of the sale deed, by which it is only the auction purchaser who would be affected, hence suit can proceed against the olher defendants. It is, however, to be noticed that relief No. 1 claimed in the present case is lhat a decree be passed holding that all the proceedings relating to auction and sale are liable to be cancelled. The prayer is directed against the defendants. It has been rightly submitted that the cause of action is not against the auction purchaser alone, but even against the society inasmuch as all ihc illegalities have been attributed, in the present case, to the society in auctioning the properly of the appel-lants. It is also rightly submitted lhat the prayer is for cancellation of auction and sale proceedings; therefore, it will not be possible to treat the suit as against the auction purchaser only and to proceed with the suit in the absence of the society. The suitwould automatically fail incase it proceeds against the auction purchaser in the absence of the society, to whom all the illegalities have even attributed in conducting the auction sale of the property.
28. Learned counsel for the respondents has placed reliance upon a case reported in : AIR1950Ori257 , Harihar Mahapatta v. Hari Otha, a judgment rendered by Hon'ble Jaganmadhadas, J. as then he was, wherein it bus been held, while dealing with similar request for dropping, the State as defendant in the absence of notice under Section 80, C.P.C. as follows:
'15 Apart, however, from the fact that this suggestion to give up the Government from the array of defendants comes at every later stage in second appeal, I have come to the conclusion that this is not a case to which the cases cited above apply and lhat in this case, on the pleadings in the plaint and on the evidence on record, the Government cannot be dismissed out of the suit off-hand as being an unnecessary party. The plaint in categorical terms mentions the cause of action which involves a Government, officer, namely, the Revenue Inspector.'
29. Reliance has also been placed on behalf of the respondents on a decision reported in : [1984]3SCR309 , Bihari Chowdhary v. State of Bihar, for the proposition that in the absence of notice under Section 80 C.P.C. the suit would fail. It is to be noticed lhat Sec. 117 of the Act is in the same terms as Sec. 80 C.P.C.
30. Learned counsel for the appellants has, however, submitted that even where the jurisdiction of Civil Court is excluded, it has jurisdiction to examine the cases where the provisions of the Act are not complied with or statutory tribunal does not act in accordance with the fundamentals of the judicial proceedings. The decision relied upon in this regard is reported in , Secretary of State v. Mask and Co. Hardly any such qucslion is involved in the present case. It is not the case of the appellants that the provision contained in Section 117 of the Act in respect of notice to be given to a co-operative Society before filing of a suit against it is not a mandatory provision. It is not in dispute that notice under Section 117 of the Act was not given to respondent No. 1 before inslitution of the suit by the appellants. The matter in fact does not relate toexclusion of the jurisdiction of Civil Conn, rather it relates to failure on the part of the appellants to give mandatory notice to respondent No. 1 before filing of the suit.
31. The other questions as to whether crop of the appellants was sold earlier or not for realisation of loan dues or that any payment was earlier made, or that the suit is maintainable or not on the ground of Section 19 of the U.P. Co-operative Land Development Banks Act, 1964, these questions crop up later only when suit is held to be maintainable. But in this case, it is held that though the dispute related to the business of the society but a suit could be filed in the Civil Court as auction purchaser could not be subjected to arbitration proceedings, but the suit having been filed without mandatory notice to the society under Section 117 of the Act, the suit is not maintainable and thus it must fail.
32. In the result, second appeal fails and it is dismissed. There would, however, be no order as to costs.
33. Appeal dismissed.