Kudayathoor Service Co-Operative Bank Ltd. v. Joint Registrar of Co-Operative Societies (General) and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** ## **&** **THE HONOURABLE MR.JUSTICE N.NAGARESH** **THURSDAY, THE 24TH DAY OF OCTOBER 2019 / 2ND KARTHIKA, 1941** ## **WA.No.2116 OF 2019** **AGAINST THE JUDGMENT IN WP(C) 20699/2019(J) OF HIGH COURT OF KERALA** ## **APPELLANTS:** **1 THE KUDAYATHOOR SERVICE CO-OPERATIVE BANK LTD. NO.3316, KUDAYATHOOR POST, THODUPUZHA, IDUKKI DISTRICT, PIN CODE-685590 REPRESENTED BY ITS SECRETARY** **2 THE BOARD OF DIRECTORS, THE KUDAYATHOOR SERVICE CO-OPERATIVE BANK LTD. NO.3316, KUDAYATHOOR POST, THODUPUZHA, IDUKKI DISTRICT, PIN CODE-685590 REPRESENTED BY ITS PRESIDENT** **BY ADVS. SRI.GEORGE POONTHOTTAM (SR.) SMT.NISHA GEORGE** ## **RESPONDENTS:** **1 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), OFFICE OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), PAINAVU, IDUKKI DISTRICT, PIN CODE-685603 2 THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES(GENERAL) OFFICE OF THE ASSISTANT REGISTRAR OF CO -OPERATIVE SOCIETIES (GENERAL), THODUPUZHA, IDUKKI DISTRICT, PIN CODE-685581** **WA No.2116 OF 2019** **2** **3 THE INQUIRY OFFICER, UNIT INSPECTOR, (A UNIT), OFFICE OF THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), THODUPUZHA, IDUKKI DISTRICT, PIN CODE-685581** - **4 VS KURUVILLA, AGED 77 YEARS S/O.DEVASIA, VERUNKAL HOUSE, KUDAYATHOOR POST, IDUKKI DISTRICT** **SPL. GOVT. PLEADER SRI. MOHAMMED HASHIM R4 BY SRI.LIJI J. VADAKKEDAM** **THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 24.10.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WA No.2116 OF 2019** **3** ## **J U D G M E N T** ~ ~ ~ ~ ~ ~ ~ ~ ~ _Dated this the 24[th] day of October, 2019_ ## _**Ravikumar, J.**_ This writ appeal is directed against the judgment dated 30.09.2019 in W.P.(C) No.20699/2019. The petitioners therein are the appellants. They filed the writ petition seeking quashment of Ext.P1 proceedings whereby and whereunder an inquiry under Section 65 of the Kerala Co-operative Societies Act, 1969 ('the KCS Act', for short) was ordered besides seeking a declaration that the inquiry ordered by the 1[st] respondent under Section 65 of the KCS Act vide Ext.P1 does not satisfy the fundamentals of law governing the field and further that it is in contravention to the settled legal positions. Furthermore, they sought for issuance of a writ of Mandamus commanding the respondents to drop all **WA No.2116 OF 2019** **4** proceedings contemplated vide Ext.P1 order of inquiry. 2. The 1[st] respondent filed a counter affidavit resisting the contentions of the petitioners/appellants herein. The learned Single Judge, after hearing the learned counsel for the petitioners/appellants herein, the learned counsel appearing for the 4[th] respondent and the learned Special Government Pleader, virtually disposed of the writ petition with observations. Dissatisfied with and aggrieved by the said judgment, the appellants filed this appeal. 3. Heard the learned Senior Counsel appearing for the appellants, learned Special Government Pleader and also the learned counsel for the 4[th] respondent. 4. In troth, the learned counsel appearing for the parties reiterated the contentions raised before the learned Single Judge. Evidently, the core contention of the appellants is that Ext.P1 was passed without any application of mind and in the said circumstances, it is liable to be interfered with. In support of the said contention, the learned Senior Counsel relied on the decision in _**Melukkara Service Co-operative**_ **WA No.2116 OF 2019** **5** _**Bank Limited and Others v. Joint Registrar (General), District Co-operative Society** [2018 (2) KLT 640]_ . Evidently, the said decision is relied on to contend that for passing an order to conduct an inquiry under Section 65 of the KCS Act, the Registrar should arrive at a subjective satisfaction regarding the necessity to conduct such an inquiry. In other words, the contention is that merely because an application is filed by a majority of the members of the Committee of the Society or by not less than 1/3[rd] of the quorum for the General Body Meeting, whichever is less, seeking for such an inquiry and even on such an application, an inquiry can be ordered only if a subjective satisfaction regarding the necessity to conduct such an inquiry is arrived at. Raising _inter alia,_ such contentions, it is submitted that a perusal of Ext.P1 order would reveal that it was passed _sans_ such satisfaction. The respondents strongly refuted the said contentions and in order to support and sustain Ext.P1 order, it is contended by them that the learned Single Judge was right in arriving at the conclusion that Ext.P1 order was passed by the Registrar **WA No.2116 OF 2019** **6** upon arriving at a subjective satisfaction regarding the necessity to conduct an inquiry under Section 65 of the KCS Act. In short, according to them, the impugned order invites no appellate interference. 5. The learned Senior Counsel appearing for the appellants raised a new contention that as the inquiry under Section 65 of the KCS Act, conducted by following the provisions under Rule 66 of the KCS Rules, may lead to drastic consequences including supersession of the managing committee in power, before taking any action based on the report submitted, after culmination of such an inquiry under Section 65 of the KCS Act, to adhere to the statutory principles with the natural justice, more particularly, the provisions under Rule 66(5) of the KCS Rules, the persons likely to be affected by any such order to be passed based on the said report, should be furnished with the copy of the report and should also be afforded with an opportunity of being heard. The respondents would contend that such a contention is absolutely untenable in view of the Division Bench decision of **WA No.2116 OF 2019** **7** this Court in _**State of Kerala v. Aravindakshan Nair** [2010 (3) KLT 11]_ . It is submitted that after considering the provisions under Rule 66, more particularly Rule 66(5) of the KCS Rules, the Division Bench held that the said provision did not contemplate any opportunity of being heard to be given to any society or any person, except in regard to a situation where the report carries a recommendation for distribution of the cost of inspection amongst the parties specified in Section 67 of the KCS Act. That apart, it is contended by the learned Special Government Pleader and the learned counsel for the 4[th] respondent that such a situation has not arisen in this case as the inquiry as ordered under Ext.P1 under Section 65 of the KCS Act is yet to be completed. 6. _Per contra_ , learned Senior Counsel appearing for the appellants contended that the decision in _**Aravindakshan Nair** (supra)_ requires a reconsideration. After referring to Rule 66(5) of the KCS Rules, it is submitted by the learned counsel that the legislative intention cannot be understood as one to confine the mandate for affording opportunity of being heard **WA No.2116 OF 2019** **8** only in the case of a report carrying a recommendation for distribution of cost of inspection. It is also submitted by the learned Senior Counsel that Rule 66(5) has to be read in entirety to understand the real intent and purport of the said mandate, the mandate for granting opportunity of being heard. In short, it is contended that the decision that it is available only against a report under Section 65 of the KCS Act carrying a recommendation for distribution of cost of inspection, cannot be said to be the correct position and a perusal of the decision in _**Aravindakshan Nair** (supra)_ would reveal that the said provision was not actually analysed in detail and, therefore, before taking away the right of being heard statutorily given by interpretation, it requires a deeper consideration. 7. At the same time, it is to be noted that the same view was taken in the matter by this Court, subsequently in _**Registrar of Co-operative Societies, Thiruvananthapuram v. N.P. Paulose and others** [ILR 2017 (3) Kerala 317]_ and _**Prabhakaran Pillai v. Joint Registrar** [2017 (2) KLT 965]._ Having heard the learned counsel on both sides and taking **WA No.2116 OF 2019** **9** note of the fact that based on Ext.P1, no report was submitted before the Registrar after conducting an inquiry in tune with the procedures prescribed under Rule 66 of the KCS Rules, we are of the considered view that there is absolutely no reason for us to presume that outcome of an inquiry, if conducted based on Ext.P1, would be adverse to the appellants and further that it would be one capable of or compelling for initiating proceedings under Section 32 of the KCS Act. The position regard to the same would be unravelled only on submission of a report after culmination of the inquiry under Section 65. Shortly stated, we are of the view that the question as to whether the decision in _**Aravindakshan Nair** (supra)_ requires reconsideration or not can be left open to be raised by the appellants at the appropriate time, if such a contingency arises in future. A scanning of Rule 66 would reveal that it provides the procedures for the conduct of inquiry under Section 65 or inspection under Section 66 of the KCS Act. At any rate, we are of the considered view that in this proceeding such a **WA No.2116 OF 2019** **10** consideration is absolutely uncalled for. Consequently, such a right is left open if it is legally available to be raised. 8. Now, reverting to the question as to whether the judgment passed by the learned Single Judge invites an interference. The learned Single Judge virtually found that Ext.P1 is not infected with any illegalities warranting any interference. The contention raised to mount challenge against Ext.P1 was considered in detail by the learned Single Judge as can be seen from the impugned judgment. As noticed hereinbefore, the core contention raised therein as also before us was that it was passed without any application of mind. In other words, the same was passed, according to the appellants, without arriving at a subjective satisfaction regarding the necessity to order an inquiry under Section 65. of the KCS Act. The learned Senior Counsel drew our attention to paragraphs 17 and 18 of the decision in _**Melukkara Service Co-operative Bank Limited's case** (supra)._ Paragraph 18 of the said judgment would reveal that after adverting to the provisions under Section 65, the Division **WA No.2116 OF 2019** **11** Bench held that the responsibility cast upon the Registrar while acting _suo motu_ or on his motion, is greater than the responsibility imposed on him while acting under the provisions of Section 65(1)(b) to (f) of the KCS Act. Evidently, the Division Bench gave the _raison d'etre_ for the said view. Paragraph 18 therein reads thus:- _“The responsibility cast upon the Registrar, while he acts suo motu or on his own motion, is, according to us, greater than the responsibility imposed on him while he acts under the provisions of Section 65(1)(b) to (f) of the Act. This is because, under the statutory prescriptions, when the Registrar receives an inquiry report from the Vigilance Officer or a report of the Director of the Co-operative Audit or an application of the majority of the members or an application of the apex society, then he will generally have to act, subject to a satisfaction being prima facie arrived at. However, when he acts suo motu, which is to say, when he acts without any of such inquiry reports or applications, then the responsibility will have to be discharged by him with greater circumspection and circumscription.”_ **WA No.2116 OF 2019** **12** 9. Thus, it is held therein that when the Registrar receives an inquiry report from the vigilance officer, or a report of the Director of the Co-operative audit or an application of the majority of the members or an application of the apex society, then he would generally have to act, subject to the satisfaction regarding the _prima facie_ requirement for necessity to order an inquiry. But, at the same time, when he acts _suo motu_ , i.e., when he acts without any such inquiry report or applications, then the responsibility would have to be discharged with greater circumspection and circumscription. While considering the contentions raised by the appellants against Ext.P1, it is to be noted that the Registrar, in the case on hand, issued Ext.P1 based on an application by 30 members of the society who would constitute not less than 1/3[rd] of the quorum in a General Body Meeting. This is not in dispute. It is also necessary to bear in mind that in _**Melukkara Service Co-operative Bank Limited** (supra)_ , the Division Bench was virtually considering the question as to what is the preconditional _sine qua non_ for the Registrar of **WA No.2116 OF 2019** **13** Co-operative Societies to invoke jurisdiction under Section 65 of the KCS Act so as to cause an inquiry _suo motu_ into the working of Co-operative Societies registered under it. Evidently, it is while considering that question that the Division Bench came to the conclusion that the responsibility cast upon the Registrar while acting _suo motu_ is greater than the responsibility imposed on him while exercising the power there under sub-clauses 1(b) to 1(f). At the same time, a scanning of the said decision would reveal that the Division Bench virtually held that whenever the Registrar is called upon to exercise the power under Section 65 of the KCS Act, be it under Section 65(a) or under any other such clauses therein, the Registrar is bound to enter into a subjective satisfaction regarding the necessity or otherwise to order an inquiry. In that regard, the learned Senior Counsel appearing for the appellants further contended that such a subjective satisfaction, regarding the necessity to consider an inquiry under Section 65, can be entered only if an inquiry is conducted subsequent to the receipt of such a complaint **WA No.2116 OF 2019** **14** before holding an inquiry under Section 65 of the KCS Act, either by himself or through an authority subordinate to him into the working and financial condition of the society concerned. In the light of the contention so raised, for the appellants it is worthy to extract Section 65 of the KCS Act. It reads thus:- ## _“_ _**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_ **WA No.2116 OF 2019** **15** _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 authorized 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_ **WA No.2116 OF 2019** **16** _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 my 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._ **WA No.2116 OF 2019** **17** _(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. “_ 10. We have carefully analysed the provision under Section 65. However, we could not find any expressed or implied condition insisting for conducting an inquiry for the purpose of arriving at a subjective satisfaction regarding the necessity to hold an inquiry under Section 65. In other words, when such a complaint is received, a detailed inquiry need not be undertaken for the purpose of taking a decision as to whether an inquiry under Section 65 is to be ordered or not. If such an inquiry into the working and financial condition of the Bank concerned is conducted immediately receiving such a **WA No.2116 OF 2019** **18** complaint, as provided under Section 65 either by himself or by the officer authorised by him, whether it is only for the purpose of deciding whether it is essential and necessary to hold an inquiry under Section 65 of the KCS Act, then what is the sanctity or purpose of conducting another inquiry into the working and financial condition of the very same society. Such a double inquiry into the working and financial condition is not specifically or impliedly contemplated under Section 65 of the KCS Act. There is paradox in the said contention. If the contention of the appellants is accepted immediately on receipt of such a complaint or report, in terms of the said provision, the Registrar either by himself or by an officer authorised in writing should inquire into the working of the society for the purpose of satisfying whether such an inquiry into the working and financial condition of the society concerned should be necessary and essential. After conducting such an inquiry, how can it be held that such an inquiry into the working and financial condition of the society concerned is not required or not essential. Therefore, **WA No.2116 OF 2019** **19** according to us, what is required is only application of mind to satisfy whether an inquiry into the working and financial condition of the society is required or not. At the same time, we may hasten to add that as held by the Division Bench in _**Melukkara Service Co-operative Bank Limited** (supra),_ on receipt of such a complaint, as in this case, the Registrar is not supposed to act mechanically and necessarily he shall have to enter into a subjective satisfaction regarding the necessity or otherwise to hold an inquiry under Section 65 of the KCS Act lest it would be reduced to a routine affair. We have absolutely no hesitation to decline the contention raised by the appellants that even for arriving at such a subjective satisfaction, an inquiry into the allegations contained in the complaint thus received is required. We are of the considered view that mind is to be applied to arrive at an opinion regarding the necessity to order an inquiry based on the allegations levelled therein. It is to be noted that at that point of time, the Registrar cannot form an opinion regarding the verity of the allegations and if he undertakes inquiry regarding **WA No.2116 OF 2019** **20** the verity of the allegations before passing an order to conduct an inquiry, such an endevour would virtually reduce the subsequent inquiry proceedings into a farce. Needless to say that in such an eventuality, the party may also take up a contention that there would be no point in conducting an inquiry rather, participating in the inquiry since the very mere authority had already arrived at an opinion regarding the veracity of the allegations. Shortly stated, we are of the view that a double inquiry is not at all contemplated under Section 65 or in the procedural rules contemplated under Rule 66 of the KCS Rules. The decision in _**Melukkara Service Cooperative Bank Limited** (supra)_ can be understood as one laid down the dictum that merely because the required number of persons made a complaint or a report as provided under Section 65 is received, that by itself cannot be a reason for the Registrar to act upon it automatically rather, mechanically to conduct or cause to conduct an inquiry under Section 65 of the KCS Act, he has to apply his mind on the complaint or the report and then form an opinion as to whether in such **WA No.2116 OF 2019** **21** circumstances obtained from such report or complaint holding of an inquiry is necessary or not. A perusal of the impugned judgment would reveal that the learned Single Judge has considered the exposition of law by the Division bench in _**Melukkara Service Co-operative Bank Limited** (supra)_ carefully and cautiously, besides the provisions under Section 65 of the KCS Act to arrive at the conclusion that the decision in _**Melukkara Service Co-operative Bank Limited** (supra)_ or the provisions under Section 65 did not mandate the Registrar to send the matter for any inspection of the records to record a satisfaction that an inquiry is required to be conducted. We are of the view that the learned Single Judge has rightly held that Section 65(1)(b) to (f) mandates only the Registrar to form a _prima facie_ satisfaction as to whether the complaint or report got any merit so as to order an inquiry under Section 65 of the Act, after application of mind. A bare perusal of Ext.P1 would reveal that the Registrar has carefully gone through the complaint and then formed an opinion that in such circumstances obtained therefrom, an inquiry under Section **WA No.2116 OF 2019** **22** 65 is necessary. True that the Registrar had not explained the reasons for ordering such an inquiry in detail. In that context, it is to be noted that even after conducting an inquiry under Section 65 either by himself or through a subordinate authority, an order based on such a report has to be passed by the Registrar himself and in such circumstances giving of reasons in detail in the order for conducting an inquiry is uncalled for and not contempted under the aforesaid provision. In such circumstances, we are of the considered view that it is only proper for the Registrar to refrain from making any opinion regarding the correctness or otherwise of the allegations or the remarks in the order to hold an inquiry at that stage, for the simple reason that even after conducting inquiry by himself or by an officer authorised in writing, based on such a report, he himself has to pass the final order. It is in the aforesaid circumstances that we form the opinion that on receipt of such a report or a complaint, the Registrar is required only to apply his mind on the complaint or the report **WA No.2116 OF 2019** **23** and at that stage, he shall not make a deeper investigation or probe into the matter and such an endeavour is to be made only last of the inquiry, in terms of the procedures provided under Rule 66 of the KCS Rules. For the aforesaid reasons, we do not find any reason to accept the contention of the appellants that the Registrar had committed an illegality in not conducting an inquiry before ordering to hold an inquiry under Section 65 of the KCS Act, on receipt of the complaint which led to the passing of Ext.P1. On a careful scrutiny of Ext.P1, we are of the view that the learned Single Judge was right in holding that it would reflect application of mind by the Registrar. When the complaint carries serious allegations as is evident from Ext.P1 which led the case in hand, we are of the view that the Registry is only bound to consider the allegations in the complaint for the purpose of forming an opinion as to whether it is essential to order to hold an inquiry under Section 65 of the KCS Act. We may hasten that we shall not be understood to have held that there is truth in the allegations. Essentially, that is a matter which is to be found out in the **WA No.2116 OF 2019** **24** course of the inquiry. In such circumstances, we do not find any reason to interfere with the judgment of the learned Single Judge dated 30.09.2019 passed in W.P.(C) No.20699/2019. Hence, subject to the observations made hereinbefore, this writ appeal is dismissed. Sd/- **C.T. RAVIKUMAR, JUDGE** Sd/- **N. NAGARESH, JUDGE** aks/24.10.2019