M. Srinivasa Reddy and Others Vs. the Registrar of Co-operative Societies for Karnataka, Bangalore and Others - Court Judgment

Excerpt:
trusts and societies - duties - section 30 of karnataka co-operative societies act, 1959 - petition for quashing order superseding committee under section 30 (1) - section 30 calls for suppression when society persistently making default or being negligent in performance of duties imposed on it - or suppression is ordered when society not functioning in accordance with provisions of act, rules or by laws or any order or direction issued by state or registrar - society found to be negligent in performance of duties - kind of negligence noticed can be found even in most efficiently administered societies - such kind of mistakes cannot be contemplated by legislature - held, order superseding society liable to be quashed. - karnataka societies registration act, 1960 (17 of 1960) section 25.....order1. petitioners had been elected to the committee of the fourth respondent-society in the elections held on 31-5-1999 for a period of five years. among them, the first petitioner was, in course of time, elected as president of the society. on 10-12-1999, a show-cause notice at annexure-a under section 30(1) of the karnataka co-operative societies act, 1959 ('act' for short) came to be issued with regard to supersession of the said committee. reply was given as per annexure-b. by order dated 28-12-1999 as at annexure-g, the committee came to be superseded under section 30(1) of the act and an administrator appointed for a period of six months. petitioners seek quashing of the said annexure-g.2. at the outset, sri d'sa, learned government advocate, urges that the petitioners should not.....

Judgment:
ORDER

1. Petitioners had been elected to the Committee of the fourth respondent-Society in the elections held on 31-5-1999 for a period of five years. Among them, the first petitioner was, in course of time, elected as President of the Society. On 10-12-1999, a show-cause notice at Annexure-A under Section 30(1) of the Karnataka Co-operative Societies Act, 1959 ('Act' for short) came to be issued with regard to supersession of the said Committee. Reply was given as per Annexure-B. By order dated 28-12-1999 as at Annexure-G, the Committee came to be superseded under Section 30(1) of the Act and an Administrator appointed for a period of six months. Petitioners seek quashing of the said Annexure-G.

2. At the outset, Sri D'Sa, learned Government Advocate, urges that the petitioners should not be permitted to take recourse to Article 226 of the Constitution in order to question Annexure-G for the reason that there is an alternative and efficacious remedy provided for by way of an appeal. Sri D'Sa, in support of his plea, further submits that any exercise herein to find fault with Annexure-G would involve going into the disputed facts, which would neither be possible nor permissible to do herein, but, which can appropriately and effectively be done by the appellate forum. Sri D'Sa therefore urges that the appropriate course would be to ask the petitioners to avail the remedy of appeal provided for in the Act.

3. I am of the opinion, after hearing both Sri D'Sa, learned Government Advocate and Sri H.K. Vasudeva Reddy, learned Counsel for the petitioners, that recourse to Article 226 of the Constitution that the petitioners have resorted to, needs to be pursued to its logical conclusion without turning the petitioners away to seek remedy by way of an appeal, for the reasons to be presently stated. No exercise need be undertaken at all to go into any disputed fact, but that, even assuming for a moment that all the facts stated in the charges levelled against the society are true, they do not call for supersession, and, as such, the order of supersession needs to be quashed by this Court itself.

4. In this context, there is another contention of Sri D'Sa, learned Government Advocate that needs to be referred to. He submits thus:

On consideration of the reply furnished by the Committee, the authority which has passed the impugned order has done so, finding supersession necessary. If the matter is taken up in appeal, it may be possible for the petitioners to convince the Appellate Court that such severe action was not called for. Instead of thus preferring an appeal, if the petitioners are permitted to question Annexure-G under Article 226 of the Constitution, then it amounts to their requesting the High Court to substitute its opinion as regards the severity of the action of the authority that passed impugned order. Sri D'Sa submits that if the action was severe, and if the appellate forum found it to be so, appellate forum certainly could substitute its own opinion; but, by the present exercise, it is the High Court that would be substituting its opinion in the place of the opinion of the appellate forum.

The contention that Sri D'Sa, learned Government Advocate, urges would arise for consideration if the challenge to Annexure-G is looked at from the point of view of sufficiency or otherwise of the punishment to be imposed on proof of charges. The situation needs to be looked at from an altogether different angle. Section 30(1) of the Act requires supersession of the Committee if the circumstances enumerated in clause (a) or (b) thereof exist. There is no alternative course open to the authority concerned other than supersession of the Committee if, in the opinion of that authority, any of those circumstances exist. However, the opinion that needs to be formed in this regard has to be on an objective consideration of the deficiencies that the Committee is accused of, its reply thereto and as to whether the said deficiencies could be equated with the criteria that are specified for superseding an elected body. Without so much as an explanation from the Committee, if the mistakes pointed out by way of charges themselves are such as not to come anywhere near the criteria that the provision relating to supersession speaks of, then, forming of an opinion in the direction of supersession of the Committee cannot be called an objective assessment of the situation. Order of supersession in such a situation can, in that situation, be called only arbitrary. It is on finding the impugned order to be a result of an arbitrary exercise of the power under Section 30(1) of the Act that I find it is necessary to quash same. In the circumstances, the question of this Court substituting its opinion in place of the opinion of the appellate forum, had the appeal been preferred, on the severity of action taken, does not arise.

5. Before proceeding further, we need to remember that the Committee that came to be superseded had been elected for a term of five years, just seven months before the order of supersession came to be passed. Of course, it would not make much difference if there is no substantial change in the composition of the Committee, in the sense that majority of the members of the previous Committee have got themselves elected as members of the new Committee. It is not so here. In course of arguments, it is ascertained that out of eight elected members of the Committee that came to be superseded under Annexure-G i.e., out of theseeight petitioners, only four of them had been the members of the previous Committee. The other four are new faces. It therefore cannot be said that the present Committee should be made answerable for the sins of the previous Committee. I am referring to this particular aspect for the reason that many of the charges levelled relate to the period during which the previous Committee was in office.

6. In the light of the above background, we may look to the charges in order to understand as to why Annexure-G is termed as an arbitrary exercise of the power under Section 30(1) of the Act:

'(i) The first charge relates to non-compliance with Section 29-G(6) of the Act. It requires the Chief Executive of the Society to send copies of the extracts of cash book, etc., periodically to the Registrar. Of course, sub-section (4) of Section 29G subjects the actions of the Chief Executive to the general supervision and control of the Committee, and, therefore, the Committee cannot say that it is only the Secretary who should be blamed for failure in this regard. But, the fact remains that in several writ petitions pending in respect of this very provision i.e., Section 29-G(6), failure to comply with the same is directed not to be visited upon with coercive steps. The authority which passed the order at Annexure-G cannot be ignorant of several such directions issued by this Court in all those writ petitions that are still pending. This was therefore hardly a charge that could be made the basis of supersession.

(ii) The second charge relates to failure of the society in the matter of repayment of loan. The society replied that the loans stood satisfied as on 31-3-1999 to the extent of 100 per cent. Of course, the authority still found that a sum of Rs. 39,968.00 was still outstanding. Where performance related to several lakhs of rupees and where there is substantial repayment, the fact that a sum of Rs. 39,968.00 was still due could not have been made much of.

(iii) Charge No. 3 relates to the Committee failing to take steps to initiate recovery proceedings, though in its meeting dated 10-8-1999, the Committee resolved to set in motion the arbitration proceedings in respect of loans due from the members. The resolution itself came to be passed on 10-8-1999. Hardly four months had passed when a show-cause notice for supersession came to be received by the Committee. Passing of resolution itself showed the bona fides on the part of the members of the Committee in the matter of recovery of loans due from the members. The time gap was too short to find fault with the members of the Committee for not sending papers for arbitration proceedings.

(iv) The fourth charge related to non-obtaining of the approval under Rule 17 of the Karnataka Co-operative Societies Rules, 1960 ('Rules' for short) in respect of the establishment of thesociety. The society has been in existence since decades and the Committee that came into existence just five months earlier could not have been fastened with sole responsibility for any such non-compliance. It cannot be said that for decades, entire staff is being engaged without prior approval under Rule 17.

(v) If it was only in respect of the appointment of a Clerk on monthly salary of Rs. 750.00, Annexure-G itself mentions that the sanction had been sought in that regard.

(vi) Charge Nos. 5, 8 and 10 had been dropped on accepting the explanation and therefore there is no need to refer to them.

(vii) Charge No. 6 is that the society owed to the State Government Rs. 47,429.00 that needed to be repaid towards Government godown loan and interest thereon. It is not made out that the State Government had at any time demanded repayment of the said loan. The Committee explained that if that amount is paid to the State Government, the society would feel short of the amount for its business, and, that, therefore, after the loan due to the society is recovered, that amount would be paid to the State Government. If the State Government, as earlier said, demanded repayment of loan, and if there was failure on the part of the society to do so, then, the Committee could have been found fault with. Where there was no such demand and where, for the business of the society, the society delays repayment of the loan in order to wait for the loan recovery, there is hardly any occasion adversely affecting the interests of the members of the society in such a course of action.

(viii) The seventh charge relates to a difference of nearly Rs. 90,000.00 between the amount due to the society and what is due by it, in the sense that a huge amount can be termed to be loss incurred by the society. The very charge indicates that all this had happened prior to 31-3-1998, whereas this Committee came to be constituted on 31-5-1999. Even then, the Committee explained that it had formulated certain programmes to run the affairs of the Committee profitably. This was found fault with on the ground that they had not been implemented. It overlooks the fact that the Committee had come into existence just about six months earlier, and there was hardly any time given to the Committee to implement its programmes.

(ix) Charge No. 9 relates to the loan transaction of one Nallappa not having been entered at all in the society's accounts. The society explained that, as alleged, Nallappa had not taken loan at all, and therefore, there could be no failure in this regard. While dealing with the explanation of the society in this regard, the authority concerned has got himself confused between the names of Nallappa and Venkatarayappa, so much so that the exercise has only betrayed lack of application of mind on the part of the said authority. The said charge next relates to the excess recovery of Rs. 1,734.00 from another member Reddappa by wayof interest. The society admits this and says that it is by mistake, and that such mistakes would not be repeated. That was a sufficient explanation which any reasonable man could have accepted.

(x) Charge No. 11 relates to acceptance of credit and debits in the meeting of the Committee on 10-8-1999 for a period that extended upto 30-8-1999. Obviously in the meeting of 10-8-1999, any acceptance of the accounts could be only up to that date and not beyond that date. But, both sides appear to have got confused about this whole exercise, and, there is also further confusion with regard to the dates as being 10-4-1999, 10-8-1999, etc.

7. Above are the charges on the basis of which the Committee has come to be superseded. We have found as to how there was no serious charge so as to call for supersession of the Committee. These are all mistakes that occur in the normal functioning of even a society that is administered in a most efficient manner. If, for such mistakes, the Committee comes to be superseded, then, I do not think that there will be any Committee left to be allowed to function for the term that it is elected. When Section 30 of the Act calls for supersession, it speaks of the society persistently making default or being negligent in the performance of the duties imposed on it, or in respect of a society not functioning in accordance with the provisions of the Act, Rules or bylaws or any order or direction issued by the State Government or the Registrar. Latter part is not applicable herein because the supersession is not on the footing that the society was not functioning in accordance with the provisions of the Act, Rules, etc. That means that the authority has found fault with the society as being guilty of persistently making default or being negligent in the performance of the duties. It is true, as found above, the society has been negligent to a certain extent. But, the kind of negligence that is noticed above, as said earlier, could be found even in the most efficiently administered societies. That kind of mistakes, in my opinion, could not have been contemplated by the Legislature when it provided for the severest step of superseding the elected committee. In my opinion, any mistake or negligence on the part of the society for the purpose of supersession has to be viewed in the background of the persistent indulging in any default or negligence of such magnitude in the performance of duties as to call for the extreme step of superseding the Committee. In all other cases, as enjoined by Section 40 of the Act, of course in a different context in the matter of the State aid to co-operative societies, the necessity of encouraging the co-operative movement should not be lost sight of. Such encouragement lies in allowing the elected body to function rather than cutting short its lifespan by four and a half years. Superseding a Committee elected for five years, within six months of its being constituted, for mistakes that are pointed out above, which are of very routine course, would, in my opinion, not be in consonance with the spirit behind the requirement of the State Government to encourage and promote co-operative movement under Section 40 of the Act. Of course, this duty of the State Government has beenreferred to in the Act in an altogether different context, namely, in the matter of the State aid to co-operative societies. It is also true that the impugned order is not passed by the State Government. But the policy of the Legislature in the matter of encouraging and promoting co-operative movement even by State aid to co-operative societies, as enumerated in Chapter VI of the Act, cannot be considered as totally irrelevant, when the order of supersession for such small mistakes as would occur in routine course, is being passed by a responsible officer of the State Government. To have the mistakes such as the ones noticed above rectified, the authority had the ample power by way of directing Audit or Inquiry. Section 63(2) of the Act enabled, in course of an audit under sub-section (1) of the said Section 63, an examination of overdue debts, if any, verification of cash balance and securities, a valuation of the assets and liabilities, and an examination of the working of the society. If such an audit disclosed any defects in the working of the society, sub-section (7) of Section 63 enabled the authority to direct the society to take such action as may be specified in the order, to remedy the defects within specified time. There is then Section 64 which inter alia enables the authority to inquire into the working and financial condition of a co-operative society. Section 68 inter alia enables the authority to make an order directing the co-operative society to take remedial measures within the specified time frame in respect of the defects disclosed in the audit under Section 63 or inquiry under Section 64. Defects noticed herein perhaps could have been got rectified in one of these ways. The authority however chose an easy way -- supersede the Committee in one stroke. If supersession is to be held the only way to remedy such defects as are noticed in respect of the society concerned herein, then, the provisions contained in Sections 63, 64 and 68, etc., of the Act must be held to be totally redundant. Legislature did not provide for such an elaborate machinery like the one under Section 63 or Section 64, only to render it redundant. The said machinery is provided with a purpose, viz., having the defects rectified without affecting the democratic fabric of the Committee. Only when the Committee persists in making default or in being negligent in the performance of its duties, etc., that the final step of superseding it shall have to be taken. Otherwise, it will amount to an arbitrary exercise of power under Section 30(1) of the Act. Not that in every case, the authority should first have the audit or enquiry or inspection provided for in Sections 63, 64 and 65 of the Act conducted before taking recourse to Section 30(1) of the Act. There may be cases wherein, without resorting to Section 63, 64 or 65 of the Act, recourse needs to be taken to Section 30(1) of the Act. Justification for such an action should depend upon the facts and circumstances of each case. So far as the facts and circumstances of the present case are concerned, I am clearly of the opinion that recourse to Section 30(1) of the Act is nothing but an arbitrary exercise of the power thereunder.

8. Petition is therefore allowed. Annexure-G is quashed. The Administrator is given time till 3rd April, 2000, to handover the charge.