C. Unnikrishnan Nair v. Registrar of Co-operative Societies, Thiruvananthapuram; Joint Registrar of Co-operative Societies (General), Thiruvananthapuram; Thiruvananthapuram Service Co-operative Bank (represented by its Secretary)

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** **FRIDAY, THE 17TH DAY OF NOVEMBER 2017/26TH KARTHIKA, 1939** **WP(C).No. 22355 of 2017 (T)** **----------------------------** **PETITIONER:** ## **----------** **C.UNNIKRISHNAN NAIR, AGED 76 YEARS, S/O. P.K.CHELLAPPAN PILLAI, PRESIDENT, THIRUVANANTHAPURAM SERVICE CO-OPERATIVE BANK T 131, PRESS ROAD, THIRUVANANTHAPURAM - 695 001.** **BY ADVS.SRI.K.RAMAKUMAR (SR.) SRI.T.RAMPRASAD UNNI SRI.S.M.PRASANTH SMT.ASHA BABU SMT.R.S.ASWINI SANKAR** **RESPONDENT(S):** - **--------------** **1. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM -695 014.** **2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) THIRUVANANTHAPURAM - 695 029.** **3. THIRUVANANTHAPURAM SERVICE CO-OPERATIVE BANK T 131, PRESS ROAD, THIRUVANANTHAPURAM - 695 001, REPRESENTED BY ITS SECRETARY.** **R1 & R2 BY SENIOR GOVERNMENT PLEADER SRI K.P.HARISH R3 BY ADVS.SRI.D.SAJEEV,SC SMT.LIGEY ANTONY,SC SRI.THOMAS ABRAHAM SC** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-11-2017, THE COURT ON 17.11.2017 DELIVERED THE FOLLOWING:** **K.V.** ## **WP(C).No. 22355 of 2017 (T)** ## **----------------------------** ## **APPENDIX** **PETITIONER(S)' EXHIBITS ----------------------EXHIBIT-P1: TRUE COPY OF REPORT OF THE JUNIOR INSPECTOR, SPECIAL SALES OFFICER. EXHIBIT-P2: TRUE COPY OF JUDGMENT DATED 17.11.2016 IN WP(C) NO.10638 OF 2013. EXHIBIT-P3: TRUE COPY OF NOTES SUBMITTED BY THE PETITIONER BEFORE THE JOINT REGISTRAR. EXHIBIT-P4: TRUE COPY OF ORDER DATED 10.04.2017 OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES. RESPONDENT(S)' EXHIBITS ----------------------R3(A) TRUE COPY OF THE LIST OF ARBITRATION CEASES FILED AGAINST THE DEFAULTED LONEES BY THE BANK. /TRUE COPY/ K.V. P.S.TO JUDGE** ## **SHAJI P. CHALY, J.** -------------------------------------------------- ## **W.P.(C) No.22355 of 2017 ----------------------------------------------Dated this the 17[th] day of November, 2017** ## **JUDGMENT** This writ petition is filed by the petitioner seeking to quash Ext.P4 order passed by the 2nd respondent dated 10.04.2017 under Sec.68(1) of the Kerala Co-operative Societies Act, 1969, and for other related reliefs. Material facts for the disposal of the writ petition are as follows: 2. Petitioner is the President of the 3rd respondent society and he represents the managing committee, allegedly. He was elected as such and his term extends up to 2018. One of the main activities of the Bank is advancement of loans to the members including traders and merchants. The loans had always been advanced strictly in accordance with the various circulars issued by the Co-operative Department. One of the loans advanced by the Bank is “Soubhagya Deposit Loan” (SDL). The Bank had formulated regulations for the purpose of effecting the disbursal of the loans and its recovery. In spite of the steps taken by the Bank, the Joint Registrar has initiated action under Sec.68 of Kerala Co-operative Societies ## **W.P.(C) No.22355 of 2017** 2 Act, 1969 [hereinafter called, 'the Act, 1969']. The society fully co-operated with the enquiry under Sec.66 and a report was made by the Junior Inspector and Special Sale Officer. One of the members filed W.P.(C) No.10638 of 2013, seeking action pursuant to the report. According to the petitioner, after the report was made in the year 2011, all proceedings had been dropped, which was duly reported to this Court. This Court, however, directed the Joint Registrar to pass appropriate orders after hearing all the parties within two months. 3. Accordingly, a hearing was conducted and everything was explained to the Joint Registrar. According to the petitioner, there is no irregularity on the part of the managing committee either in the loan transactions or in other activities of the Bank. However, in spite of valid explanations offered, out of _malafide_ motives and on extraneous considerations and on account of the apparent political pressure, the Joint Registrar has passed an order dated 10.04.2017, directing to proceed under Sec.66 of the Act, appointing the Unit Inspector, Palayam, Thiruvananthapuram as enquiry officer. Ext.P1 enquiry report is submitted by the ## **W.P.(C) No.22355 of 2017** 3 enquiry officer, and based on which, now Ext.P4 order is passed, which, according to the petitioner, is in absolute violation of the provisions of the Act and Rules, 1969. 4. A counter affidavit is filed by the 2nd respondent, refuting the allegations and claims raised by the petitioner. According to the 2nd respondent, an inspection under Sec.66 of Act, 1969 was ordered against the allegations in the disposal of SDL loans by the 3rd respondent Bank as per order dated 06.05.2011. The period of inspection was extended as per order dated 06.08.2011, 11.09.2011 and 02.12.2011. Finally, a report was submitted on 19.12.2011. 5. Matters being so, one Vijayakumaran Nair has filed W.P.(C) No.10638 of 2013 before this Court, alleging that Sec.66 enquiry proceedings has not been finalized as per law, and it was thereupon, as per the judgment dated 17.11.2016, 2nd respondent was directed to hear the petitioner and the respondent Bank, and to take appropriate decision. Accordingly, hearing of both the parties were conducted on 31.03.2017, 20.02.2017, 08.03.2017, 23.03.2017 and on 30.03.2017. Sufficient opportunity was provided to submit the written statement. They were heard also. It was on the basis 4 ## **W.P.(C) No.22355 of 2017** of the entire inputs provided by the respective parties, and on the basis of the records available with the 2nd respondent, the following defects were noted: - _“1. No formal orders on the finalization of 66 enquiry was issued._ _2. Finalization of 66 enquiry was not completed though some rectification measures in the 66 enquiry were initiated, as revealed from the report of the Assistant Registrar (General), Thiruvananthapuram._ _3. Overdue to the tune of Rs.4,90,11,065/- as principal and Rs.5,27,68,467/- as interest are pending in 650 cases of SDL loans as on 30.06.2016 and Arbitration and Execution are pending in these cases._ _4. The maximum period for SDL is 12 months. Thus, all the SDL loans outstanding as on now is overdue, since the disbursal of SDL loans were stopped by Bank in 2012._ _5. In the hearing the Bank President himself has filed a statement on 23.02.2017 that an amount of Rs.4,83,20,677/- is pending recoverable as on 23.03.2017 on SDL loans and ARC, EP procedure are pending in these loans.”_ 6. Therefore, it is clear that, all mandatory requirements under law were complied with by the 2nd respondent while carrying out the inspection under Sec.66 of the Act. Therefore, it is contended that, on the basis of Ext.P1 valid order, Sec.68 enquiry was ordered to ascertain the loss resulted by way of illegal transactions and mismanagement **W.P.(C) No.22355 of 2017** 5 mentioned in Sec.66 enquiry report on the SDL loan activities of the Bank. Therefore, according to the 2nd respondent, petitioner has not made out any case justifying interference of this Court. 7. Third respondent has filed a counter affidavit as well as additional counter affidavit, stating that the 2nd respondent has not taken into consideration the subsequent events and the steps taken by the Bank in order to collect the arrear amounts outstanding in the SDL loans. It is also stated that, according to the steps taken for the recovery of the outstanding arrears, an amount of Rs.52,14,90,000/- is recovered as against the total loan of Rs.55,02,19,066/-. Therefore, according to the 3rd respondent, there is no financial loss suffered by the 3rd respondent Bank, or there is no irregularity in issuing the SDL loans. That apart, it is stated in the additional counter affidavit regarding the proceedings initiated for securing awards under the provisions of Act, 1969, and Ext.R3(a) list is also produced showing the details of the proceedings instituted, award secured and the pending cases. Therefore, according to the 3rd respondent, the action initiated pursuant to Ext.P4 is not justified under law. 6 **W.P.(C) No.22355 of 2017** 8. A reply affidavit is filed by the petitioner against the counter affidavit filed by the State Government, refuting the allegations, in which, it is stated that, even now the proceedings under Sec.66 of the Act, 1969 are not completed, and there is no loss suffered by the society consequent to the release of the loans. 9. I have heard learned Senior Counsel for the petitioner, learned Senior Government Pleader and the learned counsel appearing for the 3rd respondent. Perused the documents on record and the pleadings put forth by the respective parties. 10. As I have pointed out earlier, the relief sought for in the writ petition is to quash Ext.P4 order passed by the 2nd respondent on the basis of Ext.P1 report under Sec.66 to inquire and find out the persons responsible for the loss suffered by the Bank, and also to fix the liability of each and every person, as is provided under Sec.68(1) of Act, 1969. It is evident from Ext.P4 order that, the same is a consequential action based on the inspection conducted under Sec.66 of Act, 1969. It is pertinent to note that the proceedings as per Ext.P1 under Sec.66 of the Act is not under challenge. From **W.P.(C) No.22355 of 2017** 7 Ext.P1, I find that the Inspector appointed for inspection conducted the inspection elaborately, and has entered into categoric findings with respect to the alleged misappropriation of money and the irregularity in granting loans under the scheme pointed out above. 11. The thrust of the contention advanced by learned Senior Counsel for the petitioner is that, in accordance with the law laid down by this Court in ' _**A.K. Francis v. Joint Registrar'**_ [1990 (2) KLT 470], the fact requirements of Sec.68 constitute the condition precedent for its operation and that the payment contemplated or the deficiency in the assets of the society should have been found in the course of audit, inquiry, inspection or the winding up of the society. It is also contended that, mere negligence to recover the loan amount or mere negligence in granting the loan is not a subject matter to be considered under Sec.68 of the Act. According to the learned Senior Counsel, in order to invoke Sec.68, there should be wilful and deliberate negligence on the part of the managing committee in respect of the misappropriation and the fraudulent act. Therefore, according to the learned Senior Counsel, even going by Ext.P1 inspection report and Ext.P4 8 **W.P.(C) No.22355 of 2017** order issued under Sec.68, it is evident that, there is no wilful or deliberate attempt on the part of the managing committee of the society in the matter of grant of loans as well as its recovery. 12. Learned Senior Government Pleader has invited my attention to the judgment of this Court in _**'Thrikkadavoor Service Co-operative Society Ltyd. v. Sivasankara Pillai'**_ [1990 (2) KLT 594] and canvassed for the proposition that, as per Ext.P1 inspection report, it is evident that there is deliberate and wilful irregularity and illegality on the part of the managing committee of the 3rd respondent in the grant of loans. According to the learned Government Pleader, there is gross misappropriation of power by the managing committee of the society, and it was thereupon that the inspection was ordered under Sec.66 of Act, 1969. Therefore, learned Government Pleader is of the opinion that petitioner has not made out any case justifying interference of this Court under Article 226 of the Constitution of India. 13. Learned counsel for the 3rd respondent Bank mainly contended that the loan was issued in accordance with the provisions of the scheme, and consequent to failure on the part 9 **W.P.(C) No.22355 of 2017** of loanees to repay the amount, sufficient action is initiated to recover the loan amounts. It is also contended that, substantial amounts are recovered. Learned counsel has also invited my attention to Ext.R3(a), wherein the details with respect to the proceedings instituted against the various loanees and award secured and pending proceedings are highlighted. However, in my considered opinion, apart from the statements made in the counter affidavit, no evidence is produced to establish that recovery is actually effected, as is pleaded in the additional counter affidavit. 14. Having evaluated the respective submissions made across the Bar, and the pleadings put forth by the respective parties, I am of the considered opinion that, Ext.P4 is issued on the basis of the findings rendered in Ext.P1 inspection report under Sec.66 of the Act, 1969. The basic requirement under Sec.68 of the Act is that, the charge must be disclosed in the course of an audit under Sec.63, inquiry under Sec.65, inspection under Sec.66 or on winding up of the society. It is evident from Ext.P1 that a detailed inspection was conducted, and on the basis of the said report only, action is initiated as per Sec.68. In Ext.P4, it is categorically found that there is **W.P.(C) No.22355 of 2017** 10 wilful and deliberate act on the part of the managing committee of the society, violating the provisions of the Act and Rules, 1969, and the bye-laws of the society. It is also found in Ext.P1 that the loans are not supported by proper security. Therefore, based on the findings rendered in the inspection under Sec.66 alone, Ext.P4 is initiated. It is relevant to note in this context that, Ext.P1 inspection report is not under challenge. In my considered opinion, without a challenge against the findings rendered in Ext.P1, the challenge made against the proceedings initiated as per Ext.P4 under Sec.68 cannot be sustained. The contentions raised in the writ petition will make it clear that the apprehension of the petitioner is that, there is a likelihood of initiating action under Sec.32 of the Act, 1969, to supersede the managing committee of the 3rd respondent Bank. 15. Reckoning the facts and circumstances, and the law involved, there are no established situations made out by the petitioner to justify interference invoking the powers of this Court under Article 226 of the Constitution of India. 16. However, when the matter came up for admission, an interim order was passed by this Court on 06.07.2017, **W.P.(C) No.22355 of 2017** 11 staying finalization of proceedings pertaining to Ext.P4 for a period of three weeks and the same was being extended periodically. The said interim order is still in force. Learned Government Pleader informed that except finalization of the proceeding, the matter has attained finality. Therefore, it is only fair and proper to direct the 2nd respondent to keep any coercive or other proceedings pertaining to Ext.P4 in abeyance, against the petitioner or the members of the managing committee, for a period of two weeks from the date of service of the order on the said persons, enabling them to proceed in accordance with law. Accordingly, I do so. Resultantly, writ petition is dismissed, however, subject to the directions contained above. Sd/- **SHAJI P. CHALY JUDGE** St/16.11.2017