Jerry Easow Oommen vs Joint Registrar Of Co Operative Societies

T.R.Ravi, J

The 1st petitioner is the elected President, and petitioners 2 to 10 are the elected members of the Managing Committee of the 3rd respondent Mylapra Service Co-operative Bank Ltd.No.639. The election was held on 15.12.2018, and the petitioners assumed office on the same day. The term of office ends on 14.12.2023. The grievance is that the 1st respondent is attempting to supersede the elected committee without any reasonable cause and in violation of law by issuing successive notices under Section 32 of the Kerala Co-operative Societies Act, 1969 (hereinafter referred to as 'the Act') to oust them from office. Ext.P1 notice dated 18.04.2022 was issued on an interim report under Section 66(2) of the Act, seeking an explanation as to why action was not taken against the Secretary who is alleged to have committed certain irregularities while in office and to show cause why Section 32 of the Act should not be invoked. When the fact that the Secretary was suspended and disciplinary action was initiated was brought to notice, the Joint Registrar took no further action. Ext.P2 notice was thereafter issued on 02.06.2022 under Section 32 based on a report under Section 65 of the Act, alleging that membership was given to 4 members creating a false address, that no action was taken to realise the amounts due from them, and that demand notices issued to 8 persons are returned unserved confirming false addresses. Another allegation is that certain financial transactions with the subsidiary unit of the Society, “My Food Roller Factory,” were in violation of Section 32(1)(c) of the Act, and the Managing Committee failed to exercise their supervisory power. According to the petitioners, none of the above reasons are attributable to the present Committee, and hence, they cannot be superseded for acts done by the previous Committee. The petitioners have produced details of the membership granted to the four persons mentioned in Ext.P2 notice and submit that membership was granted years back by the then Managing Committee. It is also submitted that the said four persons had availed loans much before the present Committee assumed office and that Arbitration cases were preferred for recovery of the loan, and execution petitions are pending. The details of the cases are also stated in the writ petition. It is further submitted that the Society has obtained 118 Arbitration Awards and Execution Petitions for realising the amount awarded are pending before the department for the past several years, and the 1st respondent has not taken the necessary action. The details of the defaulters, the arbitration cases, the execution statement, etc., have also been produced along with the writ petition. The petitioners submit that due to COVID-19, the Society could not initiate fresh proceedings after April, 2020 and that in Pathanamthitta District, which was badly affected by the 2018 flood, there is a general moratorium in relation to coercive steps for recovery of loans. To effect speedy recovery, the petitioners have also approached this Court for directions by filing writ petitions, which have culminated in Exts.P7, P8, and P9 orders. Regarding the charge that loans were granted to 8 persons, the petitioners submit that the same were granted during 2016-17 after obtaining sufficient security for periods ending between 09.05.2026 to 13.01.2027. It is submitted that there was periodical remittance in the accounts, and the only reason for default was set back due to COVID-19.

Regarding the subsidiary unit, it is submitted that it is an independent entity registered under the Companies Act, and the general control is with its Board of Directors, who are the elected members of the Managing Committee. It is submitted that the transactions are properly accounted for and there are no irregularities and that the contrary allegations are vague. It is submitted that during COVID-19, the company could not function, as the raw materials for wheat processing and marketing were from UP and Gujarat.

It is contended that the Hon’ble Supreme Court has, in the decision reported in State of M.P. & Ors. v. Sanjay Nagayach & Ors. [2013 (2) KLT 733 (SC)] issued general directions for the supersession of Elected Managing Committees, which are extracted below.

“1) Supersession of an elected managing committee/ board is an exception and can be resorted to only in exceptional circumstances and normally the elected body be allowed to complete the term for which it is elected.

2) Elected committee in office be not penalised for the shortcomings or illegalities committed by the previous committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous committees.

3) Elected committee in office be given sufficient time, say at least 6 months, to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office.

4) The Registrar/Joint registrar is legally obliged to comply with all the statutory formalities, including consultation with the financing banks/ controlling banks etc., and only after getting their view an opinion be formed as to whether an elected Committee should be ousted or not.

5) Registrar/Joint registrar should always bear in mind the consequences of an order of supersession, which has the effect of ousting the Board that is holding office and disqualifying them from contesting in succeeding elections. Registrar/Joint registrar, therefore is duty bound to exercise his powers bona fide and not on the direction of those who are in power.

6) Registrar/Joint registrar shall not act under political pressure or influence and, if they do, be subjected to disciplinary proceedings and be also held personally liable for the cost of the legal proceedings.

7) Public money not to be spent by the State Government or the Registrar for unnecessary litigation involving disputes between various factions in a co-operative Society. Taxpayers’ money is not expected to be spent on settling those disputes. If found necessary, the same be spent from the funds available with the concerned Bank.”

It is submitted that the power of supersession can be invoked only if there is persistent negligence or wilful act on the part of the Managing Committee, and a mere statement or an alarming situation is not sufficient. It is stated that no documents were relied on for issuing the show cause notice to the petitioners, and in Ext.P18 letter issued to the Joint Registrar, the above aspects are pointed out. Reliance is placed on the judgment of this Court in Mohanan v. State of Kerala (W.A.No.1363/2004) to submit that if the members of the previous Managing Committee are members of the present Managing Committee, that cannot be a reason for superseding the Managing Committee, since action taken is against the whole Committee and not against a particular individual.

By Ext.P19, a third notice was issued on 27.06.2022 referring to the reports of 30.05.2022 and 23.06.2022. Ext.P20 is the report submitted by the Enquiry Officer on 23.06.2022. The petitioners submit that none of the allegations are factually and legally sustainable. It is submitted that the allegation that the former Secretary and employees made payments without proper receipt is wrong, as the same was done with the sanction of the concurrent auditor and on proper voucher. It is contended that the intention to oust the Managing Committee is evident from the very fact that successive notices are being issued without any sustainable or legal reasons. The writ petition has been hence filed, praying to quash Ext.P2 and the show cause notices issued.

The additional 4th respondent has filed a counter affidavit pointing out that petitioners 1 and 2 have been in the Committee for the past 25 years and 15 years, respectively, that petitioners 7,8 and 9 were in the Managing Committee from 2014 onwards, that C.M John who is not a party in the proceedings was in the Committee for the last 15 years and that petitioners 4, 5, 6 and 10 are first-timers in the Committee. It is stated that the Society has 10007 members, out of which 80% were included on the basis of bogus addresses without address proof and are people not residing within the area of operation. It is stated that the total deposit with the Society is Rs.107 Crores, and the loan outstanding totals to Rs.67 Crores. It is stated that loans are granted without sufficient security and that most members are from Kollam, Alappuzha, and Thiruvananthapuram. It is stated that an amount of Rs.32.52 Crores was advanced to the venture ''My Food Roller Flour Factory Pvt.Ltd'' started by the President, Secretary, and 4 Managing Committee members without any security and without permission of the department and without any provision in the bye-laws for grant of such advances. The venture has thereafter been closed, and no money was paid back. It is stated that the bank is not in a position to honour the claim of the depositors in the savings bank and fixed deposits. Ext.R4(a) is the news published in Mangalam daily dated 03.06.2022. Ext.R4(b) is the news published in Mathrubhumi daily dated 09.06.2022. Ext.R4(c) is the news published in Deepika daily on 11.06.2022. Ext.R4(d) is the news published in Mangalam daily dated 15.06.2022. The above reports speak about the plight of the depositors. Subsequently, the 3rd respondent has produced additional documents giving details of the pending actions taken for recovery, etc.

The 1st respondent has filed a detailed counter affidavit stating as follows:

The Society is registered under Section 7 of the Act and classified as an Agricultural Credit Society functioning under the Registrar of Co-operative Societies. The deposit outstanding is Rs.107,78,61,699/- and Rs.67,56,02,972/- is the loan outstanding. The net loss is Rs.3.6 Crores. It is stated that on complaints from members, the Registrar appointed an Assistant Registrar to conduct an inspection into the affairs of the “My Food Roller factory” functioning under the Society, and Ext.R1(a) report was submitted. Considering Ext.R1(b) report of the Deputy registrar (Vigilance), an enquiry under Section 65 of the Act was ordered, and a Unit Inspector was appointed as the Enquiry Officer. It is stated that after the enquiry, action will be taken under Section 68 of the Act. The defects noted on the inspection by the Joint Registrar have been extracted in the counter affidavit, the gist of which is extracted below.

(i) The address shown in the admission register and loan ledger differs from that in the title deed and gehans pledged in the bank.

(ii) Eight loans of Rs.25 lakhs each, totalling to Rs.2 Crores, are granted to eight persons belonging to different families in different parts of the Taluk, under false addresses, and the property pledged is 62 cents situated outside the area of operation of the bank. Registered notices were returned, evidencing fake addresses.

(iii) Many transactions made from the account maintained in the name of the subsidiary unit of the bank, “My Food Roller Factory” are not in any way related to the operations of the factory. The examples cited are:

a) Transaction worth Rs.74,75,881/- towards loan accounts of the members;

b) R.4,00,000/- withdrawn without proper signature; and

c) Rs.7,00,000/- transferred to Sky Aviation Academy without voucher or bill”.

It is stated that Ext.P2 is only a notice, and further proceedings will be issued as per the law laid down by this Court in the decision reported in Premakumaran N. v. Joint Registrar of Co-operative Societies (General) & Ors. [ILR 2020(4) Ker. 303] and Manish S Pardasani (M/s Wine Kornder) & Ors. v. Inspector State Excise & Ors. [(2019) 2 SCC 660] produced as Exts.R1(d) and R1 (e) respectively. The 1st respondent has thereafter produced additional documents regarding the reports and the subsequent actions taken, pending the writ petition.

The 3rd respondent bank has filed a counter affidavit stating as follows:

The Bank was running profitably for five years till 2017-18, and in 2018-19 and 2019-20, the bank suffered severe financial setbacks due to flood, when the entire recovery came to a standstill, and due to COVID-19 which followed the floods. An amount of Rs.105,96,77,754/- (105.97 Crores) is outstanding as dues to creditors under various deposits. The total number of creditors is 12376, and the interest outstanding is Rs.4.5 Crores. An amount of Rs.64,03,44,795/- is remaining as outstanding from borrowers on loan as on 30.05.2022, out of which Rs.23,23,76,369/- is arrears and for Rs.14 Crores Arbitration Cases were filed (principal amount alone). Execution petitions filed for recovery of Rs.6,65,11,129/- are pending. The interest for the outstanding due is Rs.20,76,80,720/-. The amount due from subscribers of chitties and similar schemes is Rs.7 Crores. Together, the amount will come to Rs.91 Crores. The bank has investments in landed property and has constructed buildings, and the factory is conducted in its own building, which has an extent of 1 Acre 13 cents, which is valued by Kerala Bank at Rs.6.62 crores. Another building of 30 cents with godown, generators, etc., along with the machinery, has a value of Rs.15 Crores. The bank has landed property of an extent of 40 cents, barely 1.5 KM from Pathanamthitta town valued at Rs.3 Crores. The bank has two other branches, and the branch office in Shanthinagar, having an extent of 10 cents, is valued at Rs.2 Crores. A 2-storeyed building and ground floor is used as a godown given on rent for Rs.23,000/-. Another property at Mannarakulanji having an extent of 15 cents where construction started, has a value of Rs.1.25 Crores. The bank has six lorries, one pickup van, and one Bolero jeep. The bank has sufficient assets to meet the debts. It is submitted that the crisis was unexpected. The bank had filed three writ petitions seeking directions to speed up the recovery of outstanding loans. It is stated that after the news regarding the problems faced by the bank went online on 13.2.2022, there was a surge in demands for the return of deposits. It is stated that out of the fluid security of Rs.24 Crores, a sum of about Rs.17 crores was withdrawn between 13.02.2022 and 31.05.2022 to meet the demands for return, and 1284 accounts were closed within the said period, which was unexpected. It is stated that the finding in the interim report that there was a Rs.3.94 crores deficit in the running of the factory was without considering the amount of Rs.2.32 crores receivable from the market and Rs.40 lakhs which was available in the account. It is submitted that the employees started a strike on 18.4.2022, and after reports appeared in newspapers against the bank, the borrowers stopped paying back the debts. It is stated that recovery steps were initiated and almost 18 items of properties were notified for sale on 5.08.2022 and 10.08.2022. It is submitted that if amounts are realised, that would be sufficient to pay off the deposits which have matured.

Heard the counsel for the petitioners and the counsel for the respondents at length.

The counsel for the petitioners submitted that a reading of Exts.P2 and P19 would show that it is not a case of suo motu exercise of power by the Registrar under Section 32. The action is based on reports of enquiry conducted under Sections 65 and 66 of the Act. It is hence submitted that even before the culmination of the proceedings under Sections 65 and 66, on the basis of an interim report, an action under Section 32 should not have been initiated. It is further submitted that the defects pointed out mainly relate to actions which have been taken by the earlier Committee, and the present Committee cannot be mulcted with the responsibility. It is submitted that the fact that notices are being issued one after the other would show that the Registrar has already made up his mind to supersede the present Managing Committee. On facts, it is submitted that allegations that no action is being taken for recovery of amounts due on the loans granted are not true, and the steps for recovery taken in several loan accounts are either pending before Arbitration Court or are at the execution stage and in many cases it is the department that is to take action for recovery. It will not be proper for this Court to delve into the disputed facts at the stage of notice issued under Section 32 of the Act. The only question that needs to be considered is whether the issuance of notice under Section 32 is justified and whether interference by this Court under Article 226 of the Constitution of India is warranted.

Section 65 and Section 32 of the Act are independent provisions dealing with different aspects. There are areas where they have an interplay. However, Section 32 cannot be said to be governed by Section 65(6). A final report under Section 65 is not the only basis on which action can be initiated. If that be so, the words “or otherwise” will lose their significance. It can only mean that Section 65 also facilitates an action under Section 32. Section 65 and Section 32 are extracted below;

“65. Inquiry by Registrar.- (1) The Registrar may,-

(a) on his own motion; or

(b) on an inquiry report of the Vigilance Officer appointed under section 68A; or

(c) on a report of the Director of Co-operative Audit appointed under section 63; or

(d) on an application by the majority of the members of the committee of the Society, or by not less than one third of the quorum for the general body meeting, whichever is less; or

(e) on an application by the apex Society or financing bank of which such Society is a member; or

(f) on an application of a Society to which the Society concerned is affiliated;

hold an enquiry by himself or by a person authorized by order in writing, into the constitution, working and financial condition of the Society, if he is satisfied that it is necessary so to do.

(2) The Registrar or the person authorised by him under sub-section (1) shall, for the purpose of an inquiry under this section, have the following powers, namely:-

(a) he shall, at all reasonable times, have free

access to the books, accounts, documents, securities, cash and other properties belonging to, or in the custody of the Society and may summon any person in possession of or responsible for the custody of any such books, accounts, documents, securities, cash or other properties, to produce the same at any place at the headquarters of the Society or at any branch thereof or where there is no working office for the Society, at the office of the Registrar or at the office of any of his subordinate officers;

(b) he may summon any person who, he has reason to believe, has knowledge of any of the affairs of the Society, to appear before him at any place at the headquarters of the Society or any branch thereof and may examine such person on oath; and

(c) (i) he may, notwithstanding any rule or bye-law specifying the period of notice for a general body meeting of the Society, himself call a general body meeting or require the President or Secretary of the Society to call a general body meeting at such time and place at the headquarters of the Society or any branch thereof, to determine such matters as may be directed by him;

(ii) any meeting called under sub-clause (i), shall have all the powers of a general body meeting called under the bye-laws of the Society.

(3) When an inquiry is made under this section, the Registrar may communicate the result of the inquiry to the financing bank, if any, to the Society to which such Society is affiliated and to the Circle Co-operative Union.

(4) When an inquiry made under this section reveals only minor defects which, in the opinion of the Registrar, can be remedied by the Society, he shall communicate the result of the inquiry to the Society and the Society, if any, to which that Society is affiliated. He shall also direct the Society or its officers to take such action within the time specified therein to rectify the defects disclosed in such inquiry.

(5) The inquiry under this section shall be completed within a period of six months (which period may at the discretion of the Registrar and for reasons to be recorded in writing, be extended from time to time, so however that the aggregate period shall not in any way, exceed one year).

(6) If the Registrar, on completion of the inquiry finds that there is a major defect in the constitution or working or financial condition of the Society, he may initiate action in accordance with the provisions of section 32.

Supersession of Committee.- (1) If the Registrar, after an inquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance and Anticorruption Bureau of the Government or the Vigilance Officer or otherwise, is satisfied that the committee of any society,-

(a) persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or the bye-laws or does anything which is prejudicial to the interests of the society; or

(b) willfully disobeys or fails to comply with any lawful order or direction issued under this Act or the rules; or

(c) makes any payment contrary to this Act or the rules or the bye- laws or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence; or

(d) misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, he may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee and, appoint in its place, one administrator or an administrative committee consisting of not more than three individuals, one among them as convener, who need not be members of the society, to manage the affairs of the society for a period not exceeding six months:

Provided that in the case of co-operative society, carrying on the business of banking, the provisions of the Banking Regulations Act,1949 (Central Act 10 of 1949) shall also apply:

Provided further that in the case of a co-operative society, carrying on the business of banking, appointment of Administrator/administrative committee shall not exceed one year in the aggregate:

Provided also that the board of co-operative society shall not be superseded or kept under suspension where there is no Government share holding or loan or financial assistance or any guarantee by the Government or any Board or Institutions constituted by the Government.

Explanation I.- For the purpose of this proviso, financial assistance includes any financial assistance from the Kerala Co-operative Development and Welfare Fund Board, Deposit Guarantee Scheme implemented by the Kerala Co-operative Deposit Guarantee Fund Board, Kerala Co-operative Risk Fund Scheme implemented by the Kerala Co-operative Development and Welfare Fund Board, National Bank for Agriculture and Rural Development, National Co-operative Development Corporation and any other financial institution under the control of the State or Central Government and also any financial assistance guaranteed by the said institutions.

Explanation II: A notice and an order given as per this clause to the President, in his absence to the Vice President or any committee members who is holding charge of President or Vice President or to the Chief Executive of a society shall be treated as an order given to the committee of the society.

(e) Every member of the committee superseded under this section shall from the date of order of such supersession stand disqualified to contest in the election to or to be nominated to the committee of any Society or to be appointed as an administrator in any society for two consecutive terms.]

(2) The Registrar shall consult the financing bank and Circle Co-operative Union or State Co-operative Union, as the case may be, before passing an order under sub-section (1).

(3) Notwithstanding anything contained in sub-section (1) or sub-section (2) it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so, subject however to the condition that in such cases, the period of supersession shall generally be for six months and in case a new committee cannot be constituted or enter upon office in accordance with the bye-laws of the society within the period of supersession the period may be extended for a further period not exceeding six months—

(a) in the case of a Co-operative society only after consulting the Circle Co-operative Union concerned; and

(b)in the case of an Apex Society or a Central Society only after consulting the State Co-operative Union.

(4) The committee or administrator or administrators so appointed shall, subject to the control of the Registrar and to such instructions as he may from time to time give, have power to exercise all or any of the powers and functions of the committee or of any officer of the society and take such action as may be required in the interests of the society.

(5)The committee or administrator or administrators shall, before the expiry of its or his or their term of office, arrange for the constitution of a new committee in accordance with the bye-laws of the society.

(6)Every order made by the Registrar under sub-section (1) shall be communicated to the circle co-operative union.”

The counsel for the petitioners relied on the decision of a learned Single Judge of this Court in Managing Committee of Vallappuzha Service Co-operative Bank Ltd. v. Joint Registrar of Co-operative Societies (G) & Ors. [2009 (3) KHC 599], the decision of the Division Bench of this Court in Bose E.S. & Anr. v. Managing Committee, Vellathooval Service Co-operative Bank Ltd. & Ors. [2021 KHC 345], the decision of the Hon'ble Supreme Court in State of M.P. & Ors. v. Sanjay Nagayach & Ors. [2013 (2) KLT 733], the decision of a learned Single Judge of this Court in Govindan Kutty v. Viyyur Service Co-op. Bank [1990 KHC 121], the decision of a learned Single Judge of this Court in James v. Joint Registrar [1997 KHC 493], a decision of a Division Bench of this Court in State of Kerala & Ors. v. Board of Directors of Urukunnu Service Co-op. Bank Ltd., Kollam & Ors. [2013 (2) KHC 201] and the decision of a learned Single Judge of this Court in Krishnan Nair v. Joint Registrar of Co-operative Societies [2014 (1) KLT 116].

In Vallappuzha Service Co-operative Bank Ltd. (supra), the learned Judge considered the power available for supersession under Section 32 with reference to the position before the amendment of Section 32 and after the amendment. Prior to the amendment, action could have been taken by the Registrar on being satisfied that the Committee of any Society persistently committed default or was negligent in the performance of their duties. The action is to be taken after giving the Committee an opportunity to state its objections. After the amendment, action can be taken by the Registrar if, after an enquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance and Anti-corruption Bureau of the Government or the Vigilance Officer or otherwise, he is satisfied that action needs to be taken. Thus, the satisfaction can be on several grounds after the amendment. It can either be on a suo motu enquiry or enquiry through the subordinates or on reports from the authorities mentioned in the Section. Further, after the amendment, the Section has become more stringent in the sense, several conditions have been laid down for the four separate reasons which are stated in the Section. Section 32(1)(a) speaks about persistently making default or negligence in the performance of duties or doing an act that is prejudicial to the interests of the Society. Section 32(1)(b) speaks about wilful disobeyance or failure to comply with lawful orders or directions. Section 32(1)(c) says about making any payment contrary to the Act or the rules or the bye-laws or causing any loss or damage to the assets of the Society by breach of trust or wilful negligence. Section 32(1)(d) deals with misappropriation or destroying or tampering with the records or causing the destruction of records to cover up any misconduct or malpractice. The power is wider and, at the same time, stringent. The learned Single Judge, after considering the impact of the Section, found that as far as Sections 32(1) (c) and 32(1)(d) are concerned, they are not qualified by the word ‘persistent’. But sub-clause (c) is qualified by the words ‘breach of trust or wilful negligence’. As far as (d) is concerned, there is no such qualification at all. Since it is a case of destruction or tampering of records or misappropriation, the Court found that even a single instance can, if it is extremely prejudicial to the interest of the Society, be a reason for the Registrar to invoke Section 32. Regarding the power of the Registrar to initiate action against a Committee for acts which have been done by the previous Committee, the learned Single Judge relying on the judgments of two Division Benches of this Court in Sivadasan Nair v. Registrar of Co-operative Societies [1997 (2) KLT 710] and WA No.1363 of 2004, held that it is settled law that the power under Section 32 is to supersede a Committee as a whole and can be invoked only for the actions of the present Committee and, it cannot be invoked for superseding the present Committee for the actions committed by a previous Committee, merely for the reason that some of the members of the previous committee are also members of the present committee.

In Bose E.S. (supra), the Division Bench was considering the effect of the words ‘on completion of the inquiry’ used in sub-section (6) of Section 65 and an action under Section 32. It was held that invocation of the provisions under Section 32 based on an inquiry under Section 65 is permissible only on completion of the inquiry. The Court held that where an inquiry under Section 65 is going on, in the light of Section 65(6), an action based on Section 32 can only be after the completion of the inquiry, particularly since the decision on whether it should be initiated has to be decided by the Registrar only after the completion of the inquiry and subject to the satisfaction regarding its requirement. The Court held that issuing a notice before the completion of the inquiry and requiring the petitioners to file objections and directing the Registrar to consider the objections after complying with the procedure contemplated under Section 32, without further clarification on the scope of such consideration, would amount to pre-determination of the necessity of initiation of action. The Division Bench interfered with the directions issued by the learned Single Judge to treat the notice as one under Section 32(1) of the Act, in the light of the fact that the stage for forming an opinion under Section 32 had not yet arisen, as the inquiry under Section 65 is not completed.

In Sanjay Nagayach (supra), the Hon’ble Supreme Court was considering the provisions under the Co-operative Societies Act of Madhya Pradesh. The Hon’ble Supreme Court held that the statutory authority cannot act with pre-conceived notion. The Court issued general directions regarding orders of supersession of elected committees. It was held that supersession is an exception and should be resorted to only in exceptional circumstances and normally elected body should be allowed to complete the term for which it is elected. It was ordered that the elected committee in office should not be penalised for the shortcomings or illegalities committed by the previous committee unless there is any deliberate action not to rectify the illegalities committed by the previous committee. It is further stated that at least six months' time should be given to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office and that the Registrar is legally obliged to comply with all statutory formalities, including consultation with the financing banks/controlling banks and only after getting their view, an opinion should be formed as to whether the elected Committee be ousted or not.

In Govindan Kutty (supra), a learned Judge of this Court held that the power of Registrar under Section 32 is to be exercised only in rarest of rare cases and not on flimsy grounds. The Ccourt specifically held that the tendency to supersede elected boards on flimsy grounds should be curbed, if the co-operative movement is to thrive in the country. Even though the said judgment was issued 33 years ago, the situation remains the same even now.

In James (supra), a learned Single Judge reiterated the opinion that the power of supersession should be sparingly exercised, and even in case of negligence, the Society should have been directed to rectify the same instead of invoking the extreme step of supersession.

In Urukunnu Service Co-op. Bank Ltd. (supra), a Division Bench of this Court considered the question of supersession and held that a mere finding that the Committee has failed in its duties alone is not sufficient without a further finding that they did the same with a culpable mind. It was held that negligence alone does not authorise action under Section 32 (1), but the same should be persistent, deliberate, and also, at times, fit to be characterised as culpable. The Division Bench approved the judgment in Vallappuzha Service Co-operative Bank Ltd. (supra). The Court held that the drastic step of superseding a Managing Committee under Section 32 can be resorted to only in exceptional circumstances, that too only after scrupulously following the procedure prescribed in Section 32. It was further held that it is mandatory on the part of the Joint Registrar to consult with the expert bodies like the Financing Bank and the Circle-Co-operative Union before taking the drastic step of superseding a Managing Committee and that for dispensing such consultation, there must be very cogent and acceptable reasons and not just a single statement that an ‘alarming situation’ is present.

The Government Pleader relied on the decision of a Division Bench of this Court in State of Kerala v. Sudarsanan [1997 (2) KLT 522], the decision in W.P.(C) No.16015 of 2008, the decision in Premakumaran (supra), Krishnan Nair v. Joint Registrar of Co-operative Societies [2014 (1) KLT 116] and Joint Registrar of Co-operative Societies, Madras & Ors. v. P.S.Rajagopal Naidu, Govindarajulu & Ors. [AIR 1970 SC 992].

In Rajagopal Naidu (supra), the Hon’ble Supreme Court was considering Section 72 of the Madras Co-operative Societies Act, which provided for the supersession of the Society. The Hon’ble Supreme Court held that an audit under Section 64, inquiry under Section 65, or an inspection under Section 66 of the Act need not be present before the Registrar takes an action under Section 72. The Court also held that an opportunity need not be given for rectification of the defects, which may come to light as a result of such audit, inquiry or inspection. The provision of law, which was considered by the Hon’ble Supreme Court, cannot be said to be in pari material with Section 32 of the Act, and the dictum laid down cannot be strictly applied while interpreting Section 32. The Supreme Court has noted that Section 72 of the Madras Co-operative Societies Act does not contain any mention of Sections 64 to 67 and held that if the intention of the Legislature was that the supersession can be ordered only after recourse to Sections 64 to 67, the same would have been specifically stated in Section 72.

In Sudarsanan (supra), the Division Bench of this Court was considering the provision as it stood prior to the amendment. The learned Single Judge, in that case, had set aside the order of supersession, finding that Section 32 was invoked without completing the procedure under Section 66, that copies of the report of the Assistant Registrar were not given to the President, and that there has been no independent consideration by the Joint Registrar, of the complaint made against the Committee and the explanation submitted by the petitioner. The Division Bench referred to P.S. Rajagopal Naidu & Ors. (supra) and held that the condition precedent for exercising power under Section 32 is that the Registrar on materials placed before him should be satisfied that the grounds mentioned in Section 32 exist for supersession of the Committee. The Court held that it is not necessary for this purpose that the Registrar or the Assistant Registrar should exercise the powers under Sections 63, 64, 65, and 66 of the Act.

In WP(C) No.16015 of 2008, the learned Single Judge was considering the question whether successive show cause notices can be issued. The Court held that addendum show cause notices can be issued, and all that is required is that the petitioners should be granted an effective opportunity to show cause.

In Premakumaran N. (supra), the learned Single Judge has held that the High Court cannot issue directions in anticipation of an order that is yet to be issued by the statutory authority. Reliance is placed on the above judgment to submit that the inquiry is only at the stage of a notice, and no order of supersession has so far been issued. The learned Judge was considering a case where the petitioner had approached the Court seeking a declaration that action initiated under Section 32 is unjustifiable and praying to quash the notices on the premise that there are malafides in the issuance of the notices. The learned Judge relied on the judgment of the Hon’ble Supreme Court in Manish S. Pardasani (supra), where the Hon’ble Supreme Court had deprecated the issuance of directions in anticipation of the order to be passed by an Appellate Authority, observing that such orders would interfere with the independence of the authority in deciding the matter. The learned Single Judge hence refused to interfere at the stage of the notice and observed that the respondents therein should do well to remind themselves of the principles laid down by the Apex Court in Sanjay Nagayach (supra) and other cases.

I have considered the arguments of the counsel on either side and the judgments cited before me. It is settled law that this Court shall not interfere with the proceeding at the stage of the show cause notice, unless the circumstances of the case warrant such a course. It cannot be presumed that an order will be passed in a particular manner. What is required at that stage is that the affected person is given due notice and sufficient opportunity to explain his case and convince the authorities as to why action should not be taken. As far as the situations in which an elected Committee can be superseded is concerned, the law has been clearly laid down in the decisions in Sanjay Nagayach and Vallappuzha Service Co-operative Bank Ltd. (supra). The Division Bench decision in Bose E.S. (supra) also gives sufficient guidelines.

The case on hand is one in which notices have been issued directing to show cause as to why action shall not be taken to supersede. Several reasons are stated in the notices for invoking the jurisdiction under Section 32. As far as defaults of the previous Committee members are concerned, the law is already settled that the Committee in office cannot be proceeded against, for defaults committed by the earlier Committee. Action can be taken against the present Committee for defaults that are attributable to them while in office and which would come within the four walls of Section 32. The writ petition is concerned with two notices, Exts.P2 and P19. Ext.P19 contains more allegations, some of them pertaining to the period when the present Committee was in office. As such, it cannot be said that the notice itself is without jurisdiction. Section 32 does not specifically say that action under Section 32 can be invoked only after completion of an inquiry under Section 65 or Section 66. The Section gives power to the Registrar to take action, either on the basis of his own inquiry or on the basis of reports received from others. Hence, it cannot be said that an interim report is not material at all for the Registrar to take action. The Division Bench in Bose E.S.& Anr. (supra) was considering a situation where the entire action was taken based on an inquiry under Section 65. In the above circumstances, it was stated that Section 65(6) would require the completion of the enquiry before Section 32 is invoked. The said decision cannot be understood as restricting the power of the Registrar under Section 32 to act even when Section 65 proceedings are not initiated. The judgment cannot be understood to mean that once Section 65 proceedings are initiated, then Section 32 cannot be invoked at all till the completion of the proceedings. I am, hence, of the opinion that the petitioners are not entitled to the prayer to quash Ext.P2. However, any action pursuant to the notices issued shall only be in accordance with the law laid down in Sanjay Nagayach (supra), Vallappuzha Service Cooperative Bank Ltd.(supra), Bose E.S. & Anr. (supra) and other relevant decisions and the observations made above. The respondents shall also bear in mind the fact that the period of the Committee is nearing its completion.

The writ petition is disposed of as above.