Kerala Primary Co-op. Societies Association Vs. Registrar of Co-op. Societies - Court Judgment

K. Balakrishnan Nair, J.

1. In these cases, the validity of two circulars issued by the Registrar of Co-operative Societies prohibiting appointments to all posts and promotions from posts lower to that of Junior Clerk in primary credit societies is under challenge. Therefore, they are being heard and disposed of by a common judgment.

2. For convenience, O.P. No. 26973/02 is treated as the main case and the exhibits in that Original Petition are referred to in this judgment. Ext. P5 dated 3.5.2002 is the first circular issued by the Registrar. The English translation of the said circular reads as follows:-

'Circular No. 18.2002

Sub: Regarding prohibition of all appointments in primary credit co-operative societies and promotions from posts below that of Junior Clerk.

Ref: GovemmentNoteNo.1446/M(C)/2002dated3.5.2002.

Majority of the primary credit societies in the State are running at loss. Direct recruitments to the posts of Junior Clerk and above in these societies are done by the Co-operative Service Examination Board under Section 80B of the Kerala Co-operative Societies Act. 1969. The power to make appointments to posts below that of Junior Clerk is with the managing committee of the respective societies. It is seen that using this facility, the legal provision regarding appointments through Co-operative Service Examination Board is bypassed by appointing persons with higher educational qualifications in posts below that of Junior Clerk and giving them promotions to the vacancies of Junior Clerk arising as a result of promotion or change of classification. It is convinced that this tendency has to be stopped as the same is not good for the proper functioning of the societies.

In the above circumstances, it is decided to stop all appointments (to all posts) and promotions from posts below that of Junior Clerk in all primary credit co-operative societies ether than urban co-operative banks under the control of the Reserve Bank and newly registered, cooperative banks/societies, temporarily for a period of 6 months.

(Sd/-)

James Varghese, I.A.S.,

Registrar of Co-operative Societies'

The said circular has been issued on the basis of the directions contained in a note issued by the Minister for Co-operation. The said note which has been referred to in the above circular and available in the file, on translation, reads as follows:-

'Majority of the primary credit co-operative societies in the State are running on loss. Theappointments to the posts of Clerk and above in the societies are done through the ExaminationBoard. The respective managing committees have the power to make appointments to the postsbelow them. It is seen that the law that all appointments should be made through the ExaminationBoard is bypassed by appointing persons with higher qualifications to the posts below that ofJunior Clerk and promoting them to the vacancies of Junior Clerk arising as a result of changeof classification or promotion. This tendency has to be stopped. Therefore, the Governmenthave decided to stop all appointments (to all posts) and promotions from the posts below thatof Junior Clerk in all primary credit co-operative societies except in urban co-operative banksunder the control of the Reserve Bank and newly registered co-operative banks/societies,temporarily for a period of 6 months. Therefore, as per the direction of the Honourable Ministerfor Co-operation, it is in formed that the Registrar of Co-operative Societies shall issue a circularin this regard explaining the above said matters today itself.'

3. The validity of the above said circular issued on the basis of the direction of the Government expired on 2.11.2002. Therefore, the Registrar issued another circular dated 2.11.2002 (Ext, P6) extending the period of ban on appointments/promotions for a further period of 6 months. It is stated in the second circular that since the object for which the first circular was issued has not been achieved, the second circular extending the ban by 6 months is issued subject to the result of certain Original Petitions pending before this Court. The petitioners submit that the said circulars have been issued in violation of Section 80A(3) of the Kerala Co-operative Societies Act. It is also submitted that those circulars violate the provisions contained in Rules 182(2) and 185(1) of the Kerala Co-operative Societies Rules. It is also submitted that Appendix II issued under Rule 188 of the Rules provides for reducing the number of staff when the society is running at loss and increasing it when it is working on profit. There is a built-in mechanism in Appendix-III to take care of the loss of a co-oparative society. It is also pointed out that many of the societies which are running on profit are also hit by the embargo against making appointments/promotions. So, it is submitted that the circulars have been issued mechanically, without any application of mind. They also point out that the circulars have been issued under the dictation of the Government. They also have a case that in case sufficient employees are not there to cater to the needs of the customers, the same will result in loss of business and consequential loss to the banks.

4. The respondents would submit that Ext. P5 circular has been issued as a temporary measure to study the problems and improve the functioning of the societies. Reliance is placed on Section 66 and Section 66A of the Act which empower the Registrar to issue appropriate directions to the co-operative societies. Relying on the preamble of the Act, the respondents submitted that the circulars have been issued to achieve the objects contained in the preamble.

5. I heard both sides. The learned Counsel for the petitioners relied on the decision of this Court in 'Elampal Service Co-operative Bank Ltd. v. Governmentof Kerala' (2000 (3) KLT 389). The learned Special Government Pleader appearing for the respondents relied on the decisions of the Court in 'Kurian v. Joint Registrar' (1990 (1) 618) and 'Trivandrum District Co-operative Bank Ltd. v. State of Kerala' (1992(1) KLT 381).

6. It is not in dispute that the power to make appointments to all posts in primary credit co-operative societies is vested in the managing committees of the respective societies. Even in the case of appointments governed by Section 80B, the actual appointment is to be made by the concerned committee. This will be evident from Section 80B(3) which reads as follows:-

'All appointments shall be made by the committee concerned from the list of candidates after conducting an interview of the candidates and making a select list therefrom in such a manner as may be prescribed.'

R. 182(2) reiterates the power of the managing committee to make appointments. The said provision reads as follows:-

'The committee shall be the authority competent to appoint employees in a co-operative society.'

In the light of Rule 185(1), all vacancies in primary credit co-operative societies have to be filled up by promotion, if there are qualified employees in accordance with the feeder category regulations framed with the approval of the Registrar, Rule 185(1) reads as follows:-

'Subject to the provisions of Sub-rule (2), (3) and (4), appointments to the category of posts in a society other than those mentioned in Sub-rule (2), (3) and (4), shall be made by promotion on the basis of seniority in the feeder category. The feeder categories, for this purpose, shall be specified by the society by framing suitable regulations with the approval of Registrar.'

Sub-rules (2), (3) and (4) are not applicable to primary credit co-operative societies. Therefore, by virtue of the above quoted Rules, the vacancies in higher categories shall be filled up from those in the feeder categories according to seniority in all primary credit co-operative societies. The employees have a legal right to the performance of this duty by the managing committees.

7. Thus, by the impugned circulars, the power of the managing committee to appoint employees under Rule 182(2) and the duties and rights respectively of the managing committees and employees under Rule 185(1) are linked with. It has been held by this Court that the power of supervision under the provisions of Section 66 includes the power to issue appropriate circulars to guide the societies. To get over the vagueness in Section 66, Section 66A has been incorporated by the Legislature conferring express powers onthe Registrar to give directions to the co-operative societies. The said provisions reads as follows:-

'66A. Power of Registrar to give directions: - Subject to the provisions contained in the Act and the Rules made thereunder, the Registrar may issue general directions and guidelines to the co-operative societies in furtherance of the purposes of this Act.'

So, the circular issued by the Registrar cannot modify or tinker with any of the provisions of the Act or the Rues. But, a reading of the impugned circulars will show that they plainly run counter to the provisions contained in Rules 182(2) and 185(1), It also runs counter to Appendix-III to the Rules issued under Rule 188. The said appendix providing staff pattern to various types of societies is also part of the rules. Therefore, the impugned circulars are ultra vires the provisions of the Act and Rules.

8. A Division Bench of this Court in 'Elampal Service Co-operative Bank Ltd. v. Government of Kerala' (2000 (3) KLT 389) has held that the previous sanction of the Registrar is not necessary for appointing staff as per the staff pattern fixed in Appendix-III. The relevant portion of the decision reads as follows:-

'4. If large volume of business is carried on by a society, sufficient staff is required for doing that work, whether the society is working on loss or profit. For reclassification, the question to be looked into is whether the conditions mentioned in Appendix-III are satisfied or not. If those conditions are satisfied, depending upon the working capital and other parameters mentioned therein consequential staff strength also will be necessary and loss incurred in one or two years is not the sole criteria for refusing the approval. However, if there is no sufficient work at all, it is not necessary for appointment of additional staff and then question of reclassification also should be reconsidered by the Registrar. If reclassification is correct, society should be allowed to appoint staff as per staff strength fixed in Appendix-III unless there are compelling reasons. Here it is not stated that depending upon the working capital and the volume of work, reclassification was not correct. If the reclassification is correct, rule itself gives the staff strength. Request for prior approval was rejected only by Ext. P5 dated 25.6.99 merely on the basis of loss even though resolution for reclassification was passed on 1.7.97.

xxx xxx xxx xxx xxx xxx xxx xxx 9. In Ext. P5, reclassification is not set aside. It is also not stated that in this society there is a need for financial constraint as it is continuing in the red and there is maladministration and unless restraints are made, it may go with liquidation. Here prior approval for appointment was rejected solely on the ground that there is a net loss of Rs. 19 lakhs in the audit certificate. Ext. P6 Audit Certificate dated 31.3.1999 shows that loss was reduced in the subsequent year. When Working Capital is more than Rs. 1.8 crores and deposits are more than Rs. 2.1 crores, the loss suffered is not so alarming. The Registrar has to look into the questions whether the conditions specified in the Column 3 of Appendix-III are satisfied and whether reclassification is correct ornot. We also note that for agricultural credit societies for grading as Class I as per Appendix-III, it should have declared dividend on share at least for one year during the 5 preceding years and should have worked on profit for two years in the previous 5 year period. For Class II society should have work on profit at least for one year during the preceding 3 years (No declaration of dividend is necessary). But for Class III and downward working on profit or declaration of dividend is not made a condition at ail. What is necessary for classification as Class III is stated as follows:

'Class III

1. Working Capital Rs. 1.5 Crores & above Secretarybut below Rs. 2.5. Crores2. Deposits Rs. 1 Crore & above Assistant Secretary3. Loans outstanding Rs. 1 Crore & above Internal Auditor4. Audit Classification for Not less than 'C' Sr. Clerk/Cashier/previous year Jr. Clerk/Cashier5. Over due under Loans Should not exceed Attender, Peons,2.5% of the demand Night Watchman. Therefore, working on profit is not a criteria for classification under Class III. If the society is not satisfying the conditions of classifications as per the resolution, it is for the Registrar to act under Rule 176 and society needs no previous approval for appointment of staff strictly as per staff pattern without any change as prescribed under Appendix-Ill according to its classification and type.'

This decision is an authority for the proposition that loss is not always the relevant criterion while making appointments in accordance with the staff pattern under Appendix-III.

9. The two decisions relied on by the Special Senior Government Pleader will not have any application to the facts of this case. This Court in 'Kurian v. Joint Registrar' (1990 (1) KLT 618) deals with the powers of the Registrar to issue directions regarding appointment of staff and to cancel any appointment made in violation of those directions. But, the said decision does not say that the Registrar can issue a direction contrary to the Rules and cancel an appointment for violating the said direction. The decision of this Court in 'Trivandrum District Co-operative Bank Ltd. v. State of Kerala' (1992 (1) KLT 381) also deals with the power of the Registrar to issue appropriate directions to the Societies in the matter of appointments under Section 66 of the Act and to take appropriate steps to enforce them. The above said decision also will not support the proposition that the Registrar can act against the provisions of the Act and Rules.

10. Apart from the above, it can be seen that the Registrar has issued the impugned circular Ext. P5 under dictation. The Government issued a direction to the Registrar to prohibit appointments in all primary credit co-operative societies other than urban banks and newly registered banks/societies. On the very same day, without any application of mind, the Registrar has issued the circular containing almost the very same words in the note issued by the Government. Going through the provisions of the Act, it can be seen that the Government have no power to issue such directions as was issued in this case. None of the provisions of the Act enables the Government to issue the note dated 3.5.2002, mentioned herein above, to the Registrar compelling him to issue a circular in a particular manner. Professor H.W.R. Wade, in his Administrative Law 8th edition, has dealt with the illegality of dictation by higher authorities to lower statutory authorities. The relevant portion reads as follows:-

'Closely akin to delegation, and scarcely distinguishable from it in some cases, is anyarrangement by which a power conferred upon one authority is in substance exercised byanother. The proper authority may share its power with someone else, or may allow someoneelse to dictate to it by declining to act without their consent or by submitting to their wishes orinstructions. The effect then is that the discretion conferred by Parliament is exercised, at leastin part, by the wrong authority, and the resulting decision is ultra vires and void. So strict arethe courts in applying this principle that they condemn some administrative arrangements whichmust seem quite natural and proper to those who make them.'

In the case at hand, the Registrar has acted mechanically under dictation. The Legislature has conferred the power on the Registrar to issue directions, but in fact, the said power has been exercised by the Government and under its dictation, the Registrar acted mechanically by issuing the circulars. For this reason also, Ext. P5 isvitiated.

11. Even assuming that the Registrar has the power to issue Ext. P5, still it can be seen that the same has been issued without proper application of mind. If the circular is meant to save the societies running at loss, it need not ban appointments in all co-operative societies. The direction should have been confined to those societies which are running at loss. If the put pose of the circular was to prevent appointments of highly qualified hands in posts lower to that of Junior Clerks, then, the circular should have been confined to such appointments. The petitioners have pointed out that most of their societies are running on profit. It is also pointed out that in many cases the appointments were made in the lower posts before the introduction of Section 80B in the Act. So, without confining the application of the circulars to the societies which are indulging in the mischief sought to be prevented by it, it has been made applicable to all co-operative societies. It is like the order of King Herod to eliminate all children of and below two years of age. Thus, the classification made by the Registrar is suffering from the vice of over inclusiveness. For this reason also, Ext. P5 is vitiated.

12. For all these reasons, Exts. P5 and P6 circulars issued by the Registrar are quashed and the Original Petitions are allowed. The claims of the petitioners for promotion in O.P. Nos. 26973/02, 36076/02, 36673/02, 36675/02, 36676/02, 36677/02, 38062/02 and 38304/02 shall be considered by the managing committees of the respective co-operative societies uninfluenced by the two circulars issued by the Registrar on 3.5.2002 and 2.11.2002 within two months from the date of receipt of a copy of this judgment. This direction should not be understood as a mandate to make appointments/promotions. Like every other employer, the societies will be free to decide whether they should fill up the vacancies by appointments/promotions. In other wards, the direction issued by this Court is not meant to interfere with the prerogative of every employer to decide whether or not to fill up the vacancies in his establishment.

13. Exts. P2 and P3 orders in O.P. No. 38602/02 are dependent orders issued based on the two circulars of the Registrar. Accordingly, it is declared that the said orders are invalid and unenforceable. The petitioner is entitled to continue in service by virtue of Ext. P1 appointment order and the petitioner's society shall pass consequential orders within one month from the date of receipt of a copy of this judgment. The claims of the petitioners in O.P. No. 38377/02, 37306/02, 38061/02 and 38097/02 for appointment to the post of Junior Clerk shall be considered by the respective societies in accordance with law uninfluenced by the two circulars issued by the Registrar within two months from the date of receipt of a copy of this judgment. The claim of the petitioner in O.P. No. 37939/02 shall be considered by his society for appointment to the post of Peon ignoring the circulars of the Registrar.

14. The petitioners in O.P. No. 27880/02,. 27910/02, 36984/02, 37002/02, 37919/02, 38047/02 and 38175/02 are co-operative societies. It is declared that they are free to make appointments/promotions in accordance with law ignoring the above mentioned two circulars of the Registrar of Co-operative Societies. The first petitioner in O.P. No. 21991/02 is an association of primary co-operative societies and the second petitioner is a co-operative rural bank. It is declared that the members of the first petitioner including the second petitioner will be free to make appointments/promotions ignoring the circulars of the Registrar which have been quashed. Ext. P16 in O.P. No. 37528/02 is quashed. The three Junior Clerks appointed by the petitioner society can continue in service. Ext. P5 in O.P. No. 35589/02, to the extent it prohibits appointments/ promotions based on the circulars issued by the Registrar, is quashed. The petitioner will be free to proceed with the proposed appointments in accordance with law.

15. The Joint Registrar of Co-operative Societies, Kollam will consider the request made in Ext. P3 by the petitioner in O.P. No. 31722/02 in accordance with law after affording an opportunity of being heard to the petitioner within two months from the date of receipt of a copy of this judgment ignoring the two circulars issued by theRegistrar prohibiting appointments/promotions in primary credit co-operative societies. The petitioner society in O.P. No. 37903/02 will be free to fill up the two vacancies in the post of Salesman by promoting two Peons and it can fill up the resultant vacancies in the post of Peon from Exts. P3 and P4 rank lists in accordance with law.