Melampara Service Co-Operative Bank Ltd. & Others v. State of Kerala & Ors (W.P.(C) Nos. 9154/2006 (M) & 19501/2006)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE S.SIRI JAGAN** **WEDNESDAY, THE 23RD NOVEMBER 2011 / 2ND AGRAHAYANA 1933** **WP(C).No. 9154 of 2006(M)** **-------------------------------------** **PETITIONER(S):** - **-----------------------** **1. THE MELAMPARA SERVICE CO-OPERATIVE BANK LTD. NO.1662, MELAMPARA.P.O, REP. BY ITS PRESIDENT ADV.ABRAHAM MATHEW, MAZHUVANCHERIL, MELAMPARA.P.O.** **2. THE MUTHOLY SERVICE CO-OPERATIVE BANK LTD. NO. 1631, PULIYANNUR.P.O, REP. BY ITS PRESIDENT JACOB MANNANI, THEKKUMMURY, PULIYANNOOR.P.O.** **3. THE KIZHATHADIYOOR SERVICE CO-OPERATIVE BANK LTD. NO.1995, PALA.P.O, REPRESENTED BY ITS PRESIDENT, GEORGE C.KAPPAN, KAPPIL, PALA.P.O.** **4. THE CHOONDACHERI SERVICE CO-OPERATIVE BANK LTD. NO. K.167, CHOONDACHERI.P.O, REPRESENTED BY ITS PRESIDENT SRI.CYRIAC MICHAEL.** **5. THE THALAPPALAM SERVICE CO-OPERATIVE BANK LTD. NO.3937, PLASSANAL.P.O, REP. BY ITS PRESIDENT PROF.T.M.CHACKO, THANMIPPOTHIYIL, PLASSANAL.P.O.** **6. THE MUTHOLY EAST SERVICE CO-OPERATIVE BANK LTD. NO.1606, MUTHOLY.P.O, REPRESENTED BY ITS PRESIDENT, CELINE ISSAC, MONAMPARAMBIL, MUTHOLY.P.O.** **7. THE POOVARANY SERVICE CO-OPERATIVE BANK LTD. NO.2882, POOVARANY.P.O, REP. BY ITS PRESIDENT PROF.N.M.ABRAHAM, MAPPILAKKUNNEL, POOVARANY.P.O.** **8. THE UZHAVOOR SERVICE CO-OPERATIVE BANK LTD. NO.3810, UZHAVOOR.P.O, REP. BY ITS PRESIDENT, PROF.JOSEPH GEORGE, KANATTU, UZHAVOOR.P.O.** **9. THE KADANAD SERVICE CO-OPERATIVE BANK LTD. NO.K.2, ANTHINADU.P.O, KOLLAPPALLY, REP. BY ITS PRESIDENT SEBASTIAN THOMAS, VANCHICKACHALIL.** **10. THE THIDANAD SERVICE CO-OPERATIVE BANK LTD. NO.3990, CHEMMALAMATTOM.P.O, REPRESENTED BY ITS PRESIDENT GEORGE THOMAS, KALLACHERIL, ARUVITHURA.P.O.** **11. THE KUDAKKACHIRA SERVICE CO-OPERATIVE BANK LTD. NO. 1792, KUDAKKACHIRA.P.O, REP. BY ITS PRESIDENT, K.L.JOSEPH, KOLLANICKAL, KUDAKKACHIRA.P.O.** **12. THE MELUKAVU SERVICE CO-OPERATIVE BANK LTD. NO. 3183, MELUKAVUMATTOM.P.O, REPRESENTED BY ITS PRESIDENT SUNNY MATHEW, VADAKKEMULANJANAL, KIZHAKKEENAMATTOM.P.O.** **BY ADV. SRI.MATHEW JOHN (K) SRI.SUJESH MENON V.B.** ## **RESPONDENT(S):** **-------------------------** **1. THE STATE OF KERALA, REP. BY THE PRINCIPAL SECRETARY, CO-OPERATIVE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **2. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM.** **3. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETY, KOTTAYAM.** **BY GOVERNMENT PLEADER SMT.KOCHUMOL KODUVATH** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23/11/2011, ALONG WITH WPC NO. 19501 OF 2006 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **tss** ## **W.P(C) NO.9154/2006** ## **APPENDIX** ## **PETITIONER'S EXHIBITS** **P1:- COPY OF THE KERALA CO-OPERATIVE AGRICULTURE AND RURAL DEBT RELIEF SCHEME 1990.** **P2:- COPY OF THE JUDGMENT DTD. 1.12.2005 IN WPC. 21354/2004.** **P3:- COPY OF THE CIRCULAR NO.9/2006 DT. 27.2.2006.** ## **RESPONDENT'S EXHIBITS** **NIL:-** **TRUE COPY** **P.A. TO JUDGE** **tss** ## **S.SIRIJAGAN, J.** ----------------------------------------------------WP (C) No. 9154 & 19501 of 2006 -----------------------------------------------------Dated this the 23[rd] day of November, 2011 ## JUDGMENT The petitioners in these two writ petitions are co-operative banks registered under the Kerala Co-operative Societies Act. They are aggrieved by circular No.9 of 2006 issued by the Registrar of Co-operative Societies by which guidelines have been issued to all Co-operative Societies/Banks in the State in respect of implementation of one time settlement scheme for repayment of amounts due from borrowers of loan amounts from Co-operative Societies/Banks. Their contention is that Cooperative Societies/Banks being autonomous bodies, the Registrar of Co-operative Societies does not have powers to issue circulars making it mandatory on the part of Co-operative Societies/Banks to adopt a scheme of one time settlement for recovery of amounts due from borrowers of loan amounts from Co-operative Societies/Banks. According to them neither Section 66 nor Section 66(A) of the Kerala Co-operative Societies Act authorises the Registrar of co-operative societies to issue a circular like circular No.9 of 2006. The petitioners would WP (C) No. 9154 & 19501 of 2006 -2- contend that Rule 62 of the Kerala Co-operative Societies Rules prescribes the procedure for writing off amounts due to the Cooperative Societies from borrowers which can be only after a decision of the general body of the Society and sanction from the Registrar. The question as to whether such a circular can be issued under Rule 66 is covered against the respondents in the decision of the Division Bench in **Kallettumkara Service Cooperative Bank v. Registrar of C-operative Societies (2005** **(3) KLT 483)** . According to the petitioners the reason in that decision applies with equal force to Section 66 A also. It is submitted that Section 66 A specifically stipulates that the powers of the Registrar to issue general directions and guidelines to Co-operative Societies under that section is subject to the provisions contained in the Act and Rules. They would contend that in so far as the application of an one time settlement scheme involves writing off part of the amounts due from borrowers to the society and Rule 62 specifically prescribes the procedure for writing off amounts due from borrowers to a society, general directions and guidelines for writing off such amounts cannot be issued under Section 66 A since the field is already covered by Rule 62. Petitioners therefore seek a WP (C) No. 9154 & 19501 of 2006 -3- declaration that the second respondent has no power or authority under the provisions of the Kerala Co-operative Societies Act and the Rules made thereunder to issue any circular mandating societies to implement an one time settlement scheme in respect of loan amounts due from borrowers, as directed in the impugned circular. 2. Counter affidavits have been filed on behalf of the Registrar of Co-operative Societies. The learned Government Pleader argued at length in support of the powers of the Registrar to issue such circular under Section 66 A of the Kerala Co-operative Societies Act. She would argue that in Kallettumkara Service Co-operative Bank's case (supra) the Court has considered the powers of the Registrar only under Section 66 and found that under Section 66 the Registrar has no such power. In that decision the application of Section 66 A was negatived only because that section had not been brought into force at the relevant time. In fact the learned Single Judge whose judgment was reversed by the said decision upheld a similar circular issued in 2005 based on section 66 A of the Act and only because at that time section 66 A had not been brought into force, the circular was found to be without jurisdiction. WP (C) No. 9154 & 19501 of 2006 -4- I have considered the rival contentions in detail. I am not inclined to go into the question of law raised in these writ petition as to whether the power to issue the circular in question can be traced to Section 66 A of the Act, in view of certain averment in the counter affidavit filed in WP(C) No.19501 of 2006 in paragraph 8 of which it is stated thus: “8. It is submitted that the Circular No.9/06 dt.27.2.06, Ext.P3 was only a guideline to settle the over due loans only and not all loans as contended by the petitioners. The Ext.P-2 circular is only a guideline and not mandatory in nature. The guidelines are issued in order to have uniformity in implementing the scheme for reducing the over dues of all kinds of Credit Societies in the State. In Ext.P2 the Societies have choice either to implement the scheme or not to implement the scheme or not to implement, since it is not mandatory. It is further clarified that the circular instructions are for the uniform application and for the smooth functioning of the societies as a whole. It is true that the Reserve bank of India have also issued circular guidelines for introducing one time settlement scheme in order to reduce non performing assets/over dues. It is submitted that it is not possible for Co-operative Societies/Banks to function effectively with heavy over dues. The Registrar of Co-operative Societies have issued Ext.P3 guide lines in order to bring down the mounting overdue position of the societies for improving the financial health of societies. The guide lines are issued WP (C) No. 9154 & 19501 of 2006 -5- in order to have a uniformity in implementing the scheme and also to reduce the over dues by settling the dead loans”. Again in paragraphs 11, 12 and 13 it is reiterated. The same read thus: “11. It is submitted that this respondent have denied all the averments in this para. No society is enforced to implement the scheme. Every society have their own freedom to implement the Ext.P3 guidelines. All the District Co-operative Banks and Kerala State Cooperative Banks were not implementing the Ext.P3 scheme. But they are implementing their own special recovery schemes, to collect the overdue loans. This respondent has not proceeded against any societies for not implementing the scheme. It is submitted that the Ext.P3 circular guidelines are intended to settle the overdue loans. The loanees are the members of the society and they are the real owners of the institutions. The Ext.P3 is not mandatory in nature will be benefited to the members. The Ext.P3 is not mandatory in nature will be benefited to the members. But the President/Secretaries of the petitioner Societies are challenging the guidelines which are benefited to the real owners of the Society, without any authority of the General Body which are Supreme Forum as far as Cooperative Societies are concerned. Hence the action of the petitioner Societies, filing this petition against law and it is unsustainable. WP (C) No. 9154 & 19501 of 2006 -6- 12. It is submitted that the Registrar of Co-op. Societies have issued the Ext.P3 guidelines in exercising the power vested under Section 66 A of the Kerala Co-operative Societies Act. No compulsion as alleged by the petitions are imposed on any co-operative societies to implement. It is submitted that the Registrar of Co-operative Societies have not compelled any of the societies in Kerala to implement this scheme. The societies have their own freedom to implement either this scheme or a scheme of their own if necessary. It is submitted that a prudent banker will never disagrees with the guidelines issued by the Registrar of Co-operative Societies. It is submitted that this respondent have also issued circular guidelines Circular No.27/06 dated 29.6.2006, Ext.P5 for the implementation of the scheme extending period and applicable dates which is also not mandatory. Since Ext.P3 and P5 are not mandatory, the prayer in the Writ Petition deserves no merit. 13. As to grounds (A) to (C) of the writ petition it is submitted that the Registrar of Co-operative Societies have power under section 66 A of the Kerala Co-operative Societies Act to issue circular direction. The Ext.P3 and P5 are only circular guidelines. The management of the funds of a society is vested with the Manging Committee of the Society. No compulsion is made in Ext.P3 and Ext.P5 for implementation. It is submitted that the Ext.P3 and P5 circulars are intended to reduce overdue of the society. It is not applicable to non overdue loan. If the advances become overdue a society cannot function properly. It is submitted that as per Ext.P3 and P5 the WP (C) No. 9154 & 19501 of 2006 -7- societies have freedom to collect higher rate of interest for the loans which are issued using borrowed funds of high rate of interest. If the deposit rate are high the loans issued using the high rate deposits; the societies have freedom to collect higher rate of interest for such loans. It is submitted that the petitioner societies are not disclosed the amount of the high rate deposits but they are stated the rates on interest of deposits during 19981999 and 2001. Old deposits are comparatively very small in all the banks”. In view of the fact that the implementation of the circular is not mandatory and it is open to the petitioners to opt either to implement the circular or not to implement the same, I am not called upon to decide the question of law raised. It is left open. Consequently this writ petition is disposed of recording the submission of the second respondent in the counter affidavit that the implementation of the circular is purely voluntary and optional and it would be open to the petitioners either to opt for implementation of the circular or not to opt for implementation of the circular. Sd/- **S.SIRIJAGAN, JUDGE.** Rkc //True Copy// PA to Judge.