NIRANJA KUMAR P S/O MADHAVAN & P.SUBASH S/O SIVADASAN NAIR v. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), KOZHIKODE and KARUVANTHIRUTHY (FEROKE PANCHAYATH) SERVICE CO-OPERATIVE BANK LTD.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** ## **&** **THE HONOURABLE MR.JUSTICE N.NAGARESH** **WEDNESDAY,THE 20TH DAY OF MARCH 2019 / 29TH PHALGUNA, 1940 WA.No.755 of 2019** **AGAINST THE JUDGMENT IN WP(C) 34425/2017 of HIGH COURT** ## **APPELLANTS:** **1 NIRANJA KUMAR P S/O MADHAVAN, LEELA MADHAVAM, WEST NELLUR, FEROKE P.O., KOZHIKODE.** **2 P.SUBASH S/O. SIVADASAN NAIR, PULLUR HOUSE, NELLUR, FEROKE P.O., KOZHIKODE.** **BY ADVS. SWATHI KUMAR B.S SMT.ANITHA RAVINDRAN SMT.P.S.BHAGYA SURABHI SRI.HARISANKAR N UNNI SRI.O.A.ANJU** ## **RESPONDENTS:** **1 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) KOZHIKODE, PIN-673 001. 2 THE KARUVANTHIRUTHY (FEROKE PANCHAYATH) SERVICE CO-OPERATIVE BANK LTD.NO.D.2638 KARUVANTHIRUTHY, FEROKE, KOZHIKODE PIN-673 631 REPRESENTED BY ITS SECRETARY** **WA.No.755 of 2019** **2** **BY ADVS. SRI P.P JACOB FOR R2, SMT K.R DEEPA, GOVT. PLEADER** **THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 20.03.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **WA.No.755 of 2019** **3** **J U D G M E N T** ~ ~ ~ ~ ~ ~ ~ ~ ~ ## _**Ravikumar, J.**_ This appeal is directed against the judgment in W.P.(C) No.34425/2017. The unsuccessful petitioners in the writ petition are the appellants herein. The appellants are members of the Karuvanthiruthy (Feroke Pachayat) Service Co-operative Bank Limited No.D.2638, Karuvanthiruthy. The appellants, along with certain other members of the Society, preferred Ext.P1 representation pointing out illegalities in the establishment of a Bank Mall and Neethi Hypermarket by the 2[nd] respondent-Society, in rented premises. Virtually, it is the inaction on the said representation that constrained the appellants to move this Court by filing the said writ petition, _inter alia,_ seeking a direction to the 1[st] respondent to order an inquiry under Section 65 of the Kerala Co-operative Societies Act, 1969 **WA.No.755 of 2019** **4** (for brevity, 'the Act'), on the allegations raised in Ext.P1 against the Managing Committee of the 2[nd] respondent. The claims and contentions of the petitioners were resisted by the Society by filing a counter affidavit. Especially it took up a contention that the Society is a profit making Society and that Ext.P1 representation is a politically motivated one. They also contended that the expenditure for establishment of the Bank Mall and Neethi Hypermarket was subjected to statutory audit conducted in the Society and the audit did not reveal any such illegalities, as alleged by the appellants herein. It is also their contention that an inspection was conducted by the Joint Registrar and in that inspection, it was found that all steps were taken for the construction of the establishment of the Bank Mall and Neethi Hypermarket, in accordance with law. They stated that there is absolutely no merit in the allegations in Ext.P1 representation and, therefore, based on the same, no inquiry under Section 65 of the Act **WA.No.755 of 2019** **5** shall be ordered. They had also filed additional counter affidavit. In the additional counter affidavit, it is stated that for the establishment of Bank Mall and Neethi Hypermarket, funds were expended after obtaining sanction of the general body as well as the Joint Registrar. At the same time, it is also stated therein that an application for approval for utilisation of general fund was made on 30.09.2016 and they attribute that delay in the matter of approval is occurring only due to political interference. The learned Single Judge considered the rival contentions, evidently, with reference to a decision of a Division Bench of this Court in _**Melukkara Service Cooperative Bank Ltd. v. Joint Registrar (General), District Co-operative Society** [2018 (2) KHC 143]._ A scanning of the impugned judgment itself would reveal that the learned Single Judge virtually found that the audit certificate itself would reveal the fact that the request for utilising the general fund for the aforesaid purpose **WA.No.755 of 2019** **6** submitted under Ext.R2(o) was not approved by the Joint Registrar. The learned Single Judge held that Section 65 inquiry into the affairs of a Society could not be lightly ordered on complaints preferred by members of the Society unless the Joint Registrar is satisfied as to the necessity to initiate such proceedings. Taking into account the fact that the application for permission for utilisation of the general fund is pending consideration before the Joint Registrar, the learned Single Judge found that a direction to consider Ext.P1 representation could not be issued and no direction to conduct such an inquiry could be ordered at the instance of the petitioners/appellants. In that view of the matter, the writ petition was dismissed. 2. We have heard the learned counsel appearing for the appellants, the learned counsel appearing for the 2[nd] respondent-Bank as also the learned Senior Government Pleader. 3. The contentions raised by the learned counsel **WA.No.755 of 2019** **7** appearing for the 2[nd] respondent to resist the contentions of the appellants would reveal that according to him, prior sanction contemplated under Rule 54 of the Kerala Cooperative Societies Rules, 1969 (for brevity, KCS Rules) is only a formality and since the Bank Mall and Neethi Hypermarket were established after obtaining sanction for their establishments, as is obvious from Exts.R2(j), (k) and (l), no illegality can be attributed in respect of their establishment. At this juncture, learned counsel appearing for the appellants submitted that a bare perusal of Exts.R2(j), (k) and (l) would reveal that permission granted under such orders was only for the establishment of Neethi Hypermarket and that granting sanction for establishment of Hypermarket and granting previous sanction in writing for utilising own fund under Rule 54 of the KCS Rules are different and distinct. 4. The learned Senior Government Pleader, on instructions, submitted that the request for utilising the **WA.No.755 of 2019** **8** general fund made as per Ext.R2(o) dated 23.01.2016 was rejected on 19.09.2017. Before considering the contentions in that regard, we are of the view that it is only appropriate to refer to Rule 54 of the KCS Rules and the same reads as follows:- _“_ _**Rule 54. Manner of investment of funds** :- (1) A Society may, with the previous sanction in writing of the Registrar, Invest the whole or any portion of its funds in the purchase or lease of land on the acquisition, construction or renewal of any building that may be necessary to conduct its business. The amount of the funds so invested shall be recouped on such terms as may be determined in each case by the Registrar._ _Provided that this sub rule shall not apply-_ _(a) to immovable property purchased-_ _(i) by a society at a sale held in execution of a decree, decision or award obtained by it for the recovery of any sum due to it; or_ _(ii) by a Financing Bank at a sale held in execution of a decree, decision or award obtained by a society financed by it for the_ **WA.No.755 of 2019** **9** _recovery of any sum due to such society or at a sale by or on behalf of the liquidator of such society;_ _(b) to the purchase or lease of lands or purchase, construction or remodeling of buildings of a Society, whose objects according to its bye-laws include such purchase, lease construction or remodeling:_ _Provided further that no recoupment of the amount invested under this sub-rule shall be necessary when the investment is made-_ _(a) by a society from its building fund raised out of net profits as per the bye-laws; or_ _(b) by a society other than a credit society in which the share capital raised from the members is intended to build up the special kind of business for which it has been registered._ _(2) No society shall dispose of any immovable property acquired by the society without the prior sanction of the general body and of the Registrar:_ _Provided that Housing Societies, the byelaws of which specifically provide for the purchase and sale of immovable property, may dispose of those property without the sanction_ **WA.No.755 of 2019** **10** _of the Registrar or of the general body._ _(3) A society may with previous permission of the Registrar deposit or invest its funds in institutions registered under the Travancore Cochin Literary, Scientific and Charitable Societies Act, 1955, provided that such institutions are jointly managed by Government and Co-operative societies for the promotion of health and educational purposes.”_ 5. Dealing with Rule 54 of the KCS Rules, a Division Bench of this Court in _**Misbah Salam v. Erattupetta Aided School Teachers Co-operative Society** [2012 (4) KLT 423]_ held that funds of a Society referred in Rule 54 of the Rules are own funds of the Society concerned and not borrowed funds and that it includes to be deposits as well. On going through that decision, we are of the view that the following recitals in the said judgment is worthy to be extracted:- _“Investment in land building is the common channel for diversion of funds of_ **WA.No.755 of 2019** **11** _co-operative societies and when the same is done detrimental to the interest of the society, society goes bankrupt, though individuals in management, mainly elected managing committee members and officers of the society may turn to be big beneficiaries. In order to check and prevent misappropriation of funds of co-operative societies in acquisition of land and building, the Legislature in their wisdom thought of making specific regulations requiring previous sanction in writing from the Registrar of Co-operative Societies before the society makes investment of its funds in land and building. This provision is contained in Rule 54 of the Kerala Co-operative Societies Rules made under the Kerala Co-operative Societies Act, 1969.”_ 6. We do not find any reason to disagree with the observations made by the Division Bench and a bare perusal of Rule 54 of the KCS Rules would reveal that the funds of the Society referred to therein is own funds and, in other words, general funds. There can be no doubt with reference to the position that, going by Rule 54, for its **WA.No.755 of 2019** **12** utilisation what is required is previous sanction in writing of the Registrar to invest the whole or any portion of the said fund for the purposes referred therein. 7. Now, reverting to the case on hand, Ext.R2(o) itself would reveal that the requirement under Rule 54 of the Rules was perfectly and correctly understood by the 2[nd] respondent and it is such understanding of the rule position that made the Administrative Committee to pass resolution No.6(1) for seeking prior sanction of the Joint Registrar for utilisation of own funds to the tune of `4,85,84,936/- from the general fund, for the purpose of interior furnishing and electrification for establishing the Hypermarket. There is absolutely no case for the 2[nd] respondent that what was sought under Ext.R2(o), viz., previous sanction in writing in tune with Rule 54, was granted before the actual utilisation of the aforesaid amount. It is true that the case of the 2[nd] respondent is that for establishment of Neethi Hypermarket, it obtained **WA.No.755 of 2019** **13** permission, as revealed from Exts.R2(j), (k) and (l). A careful perusal of Exts.R(2)(j), (k) and (l) would reveal that permission granted thereunder was for establishment of Neethi Hypermarket within the time stipulated thereunder and it is not previous sanction in writing for utilisation of general funds. Certainly, they are different and distinct. 7. The learned counsel appearing for the 2[nd] respondent drew our attention to Ext.R2(i). Though the attempt of the learned counsel was to establish that necessary permission was obtained, we are afraid that the said submission cannot be upheld as a bare perusal of Ext.R2(i) itself would reveal that for utilising general fund to the tune of `4,50,00,000/- for interior furnishing and electrification of the Hypermarket, no prior sanction in writing was obtained till the completion of the audit which culminated in Ext.R2(i) report and certificate. In this context, it is also to be noted that the very purpose of incorporating such a provision in Rule 54 has been rightly **WA.No.755 of 2019** **14** considered by the Division Bench in _**Misbah Salam** (supra)_ and in such circumstances, there can be no doubt that what is required thereunder is previous sanction in writing from the Registrar to invest a whole or any portion of the general fund. In such circumstances, it cannot be an approval after utilising the fund. 8. The learned Senior Government Pleader made a further submission that in connection with the aforesaid issues, a preliminary enquiry was conducted and various defects and illegalities were found. Essentially, the contention is that after perusing the reports, necessarily a decision would have to be taken as to whether an inquiry under Section 65 is essential or not, by the authority competent certainly only after receiving final report. We do not propose to make any observation with respect to the aforesaid aspect at this stage. The fact borne out from the submissions made by the learned Government Pleader is that in relation to the issues aforesaid, the question **WA.No.755 of 2019** **15** regarding the necessity to order an inquiry under Section 65 is under consideration of the Registrar and it is essentially for that purpose a preliminary enquiry was conducted. In such circumstances, we are of the considered view that no decision need be taken as to whether an enquiry invoking the power under Section 65 of the Act is required or not, at this stage. Hence, we make it clear that it will be open to the authority competent to consider that question in accordance with law, and taking into account all the relevant circumstances, a decision in that regard shall be taken expeditiously, on obtaining the further report on the alleged irregularities in the establishment of the Bank Mall and Neethi Hypermarket by the 2[nd] respondent Society pursuant to the sanction accorded under Exts.R2(j), (k) and (l). We are also of the view that no specific direction need be given to consider Ext.P1 as what is now under consideration of the authorities is exactly the issues in respect of which the **WA.No.755 of 2019** **16** allegations and grievances are raised in Ext.P1. With the above observations and directions, the writ appeal is disposed of. Sd/- **C.T. RAVIKUMAR, JUDGE** Sd/- **N. NAGARESH, JUDGE** aks/21.03.2019