K. Achuthan and J. Sabhapathy v. State of Kerala and others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE** **FRIDAY, THE 12TH DAY OF APRIL 2019 / 22ND CHAITHRA, 1941** ## **WP(C).No. 15953 of 2018** ## **PETITIONERS:** **1 K.ACHUTHAN, FORMER PRESIDENT, MANAGING COMMITTEE OF TATTAMANGALAM SERVICE CO-OPERATIVE BANK LTD.NO.P 502, TATTAMANGALAM-678 102, PALAKKAD. RES: CHALAKKALAM, TATHAMANGALAM P.O., PALAKKAD-678 102. 2 J. SABHAPATHY, FORMER MEMBER, MANAGING COMMITTEE OF TATTAMANGALAM SERVICE CO-OPERATIVE BANK LTD.NO.P 502, TATTAMANGALAM-678102, PALAKKAD. RES:SOUPARNIKA, CHUNGAM, ARANGAM ROAD, TATHAMANGALAM P.O., PALAKKAD-678 102. BY ADVS.SRI.V.M.KURIAN SRI.K.T.THOMAS SRI.MATHEW B. KURIAN** ## **RESPONDENTS:** **1 STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, CO-OPERATION DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-1.** **2 THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM-1.** ``` WPC 15953/2018 ``` ## **-:2:-** - **3 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), OFFICE OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES,PALAKKAD-678 582.** - **4 THE ASSISTANT REGISTRAR (GENERAL)OF COOPERATIVE SOCIEITES,CHITTUR, PALAKKAD-678 582.** - **5 TATTAMANGALAM SERVICE CO-OPERATIVE BANK LTD. NO. P 502, TATTAMANGALAM-678 102, PALAKKAD, REPRESENTED BY ITS SECRETARY.** - **6 UNNIKRISHNAN C, S/O. BHAMALOCHANA, PALLATHUMPULLY, TATTAMANGALAM POST, PIN- 678102, PALAKKAD.** - **BY ADVS.SRI.N.RAGHURAJ** - **SRI.T.R.HARIKUMAR SRI.S. MOHD. HASHIMI SPL. GP SRI.P M MANOJ GP** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 26.2.2019, THE COURT ON 12.04.2019 DELIVERED THE FOLLOWING:** ========================= W.P.(C).No.15953/2018 ~~~~~~~~~~~~~~~~~~~~~~~~~ Dated this the 12[th] day of April, 2019 ## J U D G M E N T This writ petition is filed by the former President and the former member of the Managing Committee of Thathamangalam Service Co-operative Bank Limited (for short, the “Co-operative Society”) challenging an order passed by the Joint Registrar Co-operative Society, Palakkad, under Section 32 of the Co-operative Societies Act, 1969 (for short, the “Act”). 2. By the impugned order dated 11.5.2018, the Managing Committee of the Co-operative Society stood superseded under the Act. Section 32 of the Act confers power on the Joint Registrar to supersede the Managing Committee of any Society based on any of the enumerated grounds therein. 3. In this case, one of the members of the Cooperative Society raised a complaint before the ## **`WPC 15953/2018`** ## **-:2:-** Joint Registrar in regard to the irregularities in sanctioning the loans. Under Section 66 of the Act, the Registrar has the power of supervision and inspection. Based on the complaint, an inquiry was initiated under Section 66(1) of the Act. 4. The inspection report pointed out certain major defects. One is in regard to the purchase of land for the Co-operative Society. This purchase, according to the report, was in violation of the Circular issued by the Registrar dated 18/2/2011 (Circular No.16/2011). The Circular insists that no purchase should be made without sanction from the Co-operative Department by utilising general funds for the purpose. The purchase was admittedly made without such sanction. The other allegations were in respect of sanctioning the loan. According to the report, the Co-operative Society sanctioned the loan ignoring valuation made by the valuation officer. The details of such loans were furnished in the report. For example, a loan issued to one ## **`WPC 15953/2018`** ## **-:3:-** Mr.Nazir for Rs.25,00,000/- by securing a property having a value of Rs.15,00,000/-. There were also similar instances of granting loans to many other members. I am not adverting to these facts as the scope of judicial review is limited. 5. The Co-operative Society purchased the land just adjacent to its existing building. The explanation of the Managing Committee was that this was the ideal land for the Co-operative Society for utilising it for their business purposes. It is the case of the Managing Committee that the property was mortgaged with the Co-operative Society. It is the specific case of the Managing Committee that technicality should not stand in the way of such purchase and Circular is only in the nature of the guidelines. 6. In regard to sanctioning the loan, the stand of the Managing committee was that the valuation of the valuer was not proper. It is only on satisfaction that eligibility of the borrower as ## **`WPC 15953/2018`** ## **-:4:-** well as the market value of the secured interest, the Managing Committee decided to sanction such loan. The Managing Committee was of the view that there is nothing wrong on their part to reject the valuation report and take a different decision based on the materials. 7. The learned counsel for the petitioners placing reliance on the judgment of the Division Bench of this Court in **Misbah Salam v. Erattupetta Aided School Teachers Co-operative Society** [ **2012** **(4) KLT 423]** argued that utilisation of its own funds for purchase is not illegal. The learned counsel for the petitioners also placed reliance on the judgments of the Apex Court as well as this Court and argued that mere defect or default in the natural course of business cannot be visited with drastic action of supersession. The relied judgments are as follows: **State of M.P. v. Sanjay Nagayach [2013 (2) KLT 733 (SC)]; Sahadevan v. Padmanabhan [2004 KHC 37 (DB)];** ``` WPC 15953/2018 ``` ## **-:5:-** **State of Kerala v. Urukunnu Service Co-operative Bank Ltd. [2013 (2) KLT 74 (DB)],** ## **Rajagopalan Nair v. State of Kerala [1995 (2) KLT 184]** **T.T.James & others v. Joint Registrar & others [1997 (1) KLJ 607]** **Krishnan Nair v. Joint Registrar of Co-operative Societies [2014 (1) KLT 116]** Per contra, the learned Special Government Pleader, placing reliance on the judgment of this Court in **Vallappuzha Service Co-operative Bank Ltd. v. Joint** **Registrar [2009 (3) KLT 838]** and argued that a single instance would be sufficient to invoke Section 32 of the Act. The learned Special Government Pleader also referred to Rule 54 of the Co-operative Societies Rules, 1969 and argued that without complying Rule 54 and the Circular which mandate the previous sanction of the Registrar, the Managing Committee invested the funds for the purchase of the immovable property. This action, therefore, is squarely covered by Section 32(1)(b) of the Act. ## **`WPC 15953/2018`** ## **-:6:-** 8. The scope of judicial review is limited. The petitioners had not chosen to invoke the remedy of revision under Section 87 of the Act. 9. The question, therefore, arises is whether based on the facts disclosed to the Joint Registrar, the Joint Registrar would be justified in invoking power under Section 32 to supersede the Committee. The Circular issued by the Registrar regulating the purchase is having statutory character as it was under Section 66A. Admittedly, the Managing Committee had violated the aforesaid circular. There will be a justification for the purchase. That justification cannot make an illegal act as legal. The Managing Committee having not chosen to obtain sanction, willfully disobeyed a direction issued by the Registrar. As already adverted, the said direction is having a statutory character. This Court is not deciding upon the circumstances or reasons for purchasing such land. In the absence of any such sanction, ``` WPC 15953/2018 ``` ## **-:7:-** this Court has to conclude that the purchase was in violation of the Circular. 10. In regard to the other findings, in the inquiry itself it was revealed that without valuation certificate, the Managing Committee had chosen to sanction the loan ignoring the valuation of the authorised valuer. It was not a single instance. Several loans were sanctioned without proper valuation. This finding of fact cannot be interfered by invoking judicial review. 11. Then the only question that arises is whether this finding of fact would warrant invocation of Section 32 of the Act. A Committee can be superseded on pointing out the existence of any of the grounds of such supersession under Section 32. The purchase itself was disobeying the Circular. The Joint Registrar acted based on an inspection report under Section 66 of the Act. Lapses in business and error in judgments are different from a conscious act which are prejudicial to the ## **`WPC 15953/2018`** ## **-:8:-** interest of the Society. On the facts, if it can be distinguished that such acts are prejudicial to the interest of the Society, an order of supersession can be justified under Section 32. Disobedience to the Circular cannot be treated as a mistake. It has serious consequences. Sanction is insisted for the reason that on account of the purchase, the Co-operative Society should not suffer. The petitioners may have reasons by pointing out to the financial position of the Cooperative Society to purchase land but that does not mean, a decision that has to be taken for sanction by the Joint Registrar should be substituted by a decision of the Managing Committee. This is nothing but wilful disobedience of the statutory Circular. 12. In regard to the sanctioning of the loan, without any other materials before the Managing Committee to sanction the loan ignoring the valuation prepared by the official valuer, it could ``` WPC 15953/2018 ``` ## **-:9:-** not have sanctioned loan above the valuation. That are all actions prejudicial to the interest of the Society. These conscious actions are based on extraneous consideration. Such action cannot be treated as a mistake or error in the judgment in the normal course of the business. There is no scope for interfering with the impugned order. Accordingly, the writ petition is dismissed. No costs. Sd/- **A.MUHAMED MUSTAQUE, JUDGE** ms ## **`WPC 15953/2018`** ## **-:10:-** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **TRUE COPY OF THE SALE DEED NO. 816/2015 OF CHITTUR SRO.** **EXHIBIT P2 TRUE COPY OF THE LOCATION SKETCH OF THE PROPERTY.** **EXHIBIT P3 TRUE COPY OF THE ORDER DATED 18.11.2016 ISSUED BY 1ST RESPONDENT.** - **EXHIBIT P4 TRUE COPY OF THE NOTICE DATED 17.05.2017 ISSUED BY 1ST RESPONDENT.** - **EXHIBIT P5 TRUE COPY OF THE OBJECTION 05-06-2017 SUBMITTED BY PETITIONER.** - **EXHIBIT P6 TRUE COPY OF THE CIRCULAR NO. 16/2011 DATED 18.02.2011 ISSUED BY REGISTRAR OF CO-OP SOCIETIES.** - **EXHIBIT P7 TRUE COPY OF THE STATEMENT OF LAND TRANSACTION DURING THE PERIOD.** - **EXHIBIT P8 TRUE COPY OF G.O (RT) NO. 1684/15/RD DATED 28.03.2015 ISSUED BY GOVERNMENT OF KERALA.** - **EXHIBIT P9 TRUE COPY OF THE GENERAL BODY RESOLUTION NO. 11 DATED 30.09.2016 OF 3RD RESPONDENT.** - **EXHIBIT P10 TRUE COPY OF THE LAND VALUE CERTIFICATE DATED 17.04.2018 ISSUED BY TAHSILDAR, CHITTUR.** - **EXHIBIT P11 TRUE COPY OF THE CALCULATION SHEET OF THE LAND VALUE.** - **EXHIBIT P12 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 13.03.2018 ISSUED BY 1ST RESPONDENT.** - **EXHIBIT P13 TRUE COPY OF THE JUDGMENT DATED 09.04.18 IN WPC NO. 12375/2018.** **EXHIBIT P14 TRUE COPY OF THE EXPLANATION DATED 25.04.18 SUBMITTED BY PETITIONERS.** ## **`WPC 15953/2018`** ## **-:11:-** **EXHIBIT P15** **TRUE COPY OF THE JOINT SUBMISSION OF PETITIONERS AND OTHERS.** **EXHIBIT P16** **TRUE COPY OF THE ORDER DATED 11.05.2018 PASSED BY THE 3RD RESPONDENT.** **EXHIBIT P17 PHOTOGRAPH OF THE HEAD OFFICER AND BRANCH OF THE BANK.** **EXHIBIT P18 PHOTOGRAPH OF THE SHOPPING COMPLEX OF THE BANK.** **EXHIBIT P19 PHOTOGRAPH OF THE INTERIOR OF HEAD OFFICE AND BRANCH OF THE BANK.** **EXHIBIT P20** **TRUE COPY OF THE LETTER DATED 04/05/2018 ISSUED BY 3RD RESPONDENT.** **EXHIBIT P21 TRUE COPY OF THE DECISION NO.5 DATED 08/05/2018 OF PART TIME, ADMINISTRATOR, PALAKKAD DISTRICT CO-OP BANK LTD.** **RESPONDENT'S/S EXHIBITS:** **EXHIBIT -R5(A)** **TRUE COPY OF THE AUDIT CERTIFICATE OF THE 5TH RESPONDENT SOCIETY FOR THE YEAR 20172018.** **EXHIBIT -R5(B)** **TRUE COPY OF THE LETTER DATED 09/08/2018 ISSUED BY ASSISTANT ENGINEER, BUILDING SECTION, CHITTUR, TATTAMANAGALAM.** //TRUE COPY// PS TO JUDGE ## **`WPC 15953/2018`** **-:12:-**