Radhakrishna Kurup v. Nadakkal Service Cooperative Bank Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM THE HONOURABLE MR. JUSTICE V.CHITAMBARESH & THE HONOURABLE MR. JUSTICE SATHISH NINAN TUESDAY, THE 3RD DAY OF JULY 2018 / 12TH ASHADHA, 1940 W.A.No. 1170 of 2016 IN WPC.No.2640 of 2013 AGAINST THE JUDGMENT IN WP(C).NO. 2640/2013 OF HIGH COURT OF KERALA DATED 22-03-2016 APPELLANT/PETITIONER: RADHAKRISHNA KURUP, S/O KRISHNA KURUP, AGED 59 YEARS, VYGA, VELAMANNOOR, PARIPILLY P.O, KOLLAM - 691 574. BY ADVS.SRI.T.B.HOOD SMT.M.ISHA SRI.AMAL KASHA RESPONDENTS/RESPONDENTS: 1. NADAKKAL SERVICE CO-OPERATIVE BANK LTD. NO.1874, KALLUVATHUKKAL, KOLLAM - 691 001, REPRESENTED BY ITS SECRETARY. 2. SALE OFFICER, NADAKKAL SERVICE CO-OPERATIVE BANK LTD. NO.1874, CO-OPERATIVE SOCIETY ASSISTANT REGISTRAR (GENERAL), KOLLAM - 691 001. ## 3. THE REGISTRAR, CO-OPERATIVE SOCIETIES, KOLLAM - 691 001. ## 4. DEPUTY SECRETARY, CO-OPERATIVE DEPARTMENT, THIRUVANANTHAPURAM - 695 001. R1 BY ADV. SRI.P.C.SASIDHARAN R2 TO R4 BY SENIOR GOVERNMENT PLEADER SMT.K.R. DEEPA THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ALONG WITH W.A.NOS.1171 & 1212 OF 2016 ON 27.06.2018, THE COURT ON 03.07.2018 DELIVERED THE FOLLOWING: “CR” ## V. CHITAMBARESH & SATHISH NINAN, JJ. = = = = = = = = = = = = = = = = = = = = = = = = ## W.A.Nos.1170, 1171 & 1212 of 2016 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 3[rd] day of July, 2018 ## Judgment ## Chitambaresh, J. 1.These writ appeals arise out of the common judgment in the case titled Radhakrishna Kurup v. Nadakkal Service Cooperative Bank Ltd . [2016(4) KLT 82]. 2.About 10.12 ares of land in Sy. Nos.278/21 and 278/21-2 of Paripally Village in Kollam Taluk belonging to the appellants (who are husband and wife) were brought to sale by the first respondent co-operative bank. The property was sold on 14.01.2009 for a total sum of `44,78,130/- in execution of the awards obtained by the bank for realisation of amounts due in two loan accounts. The appellants had WA1170/2016 & con.cases -: 2 :- filed several writ petitions before and after sale viz, O.P.No.34650/2005, W.P(C).Nos.1219/2007, 1387/2009, 4902/2009 and 26638/2010. The appellants did not comply with the conditional orders passed therein and the writ petitions were either dismissed for default or withdrawn which have become final. The property delivered over is now in the possession of the bank which has applied for a permit to construct a building therein with an intention to house its administrative office. 3.The Government later issued an order dated 27.09.2011 requesting the managing committee of the bank to take a decision resolving to return the property to the appellants on the repayment of the loan. The managing committee by decision dated 11.10.2011 resolved not to accede to the request and accordingly informed its inability to the Government on the same day. The bank took such a decision mainly because of the sentiment of its members who were WA1170/2016 & con.cases -: 3 :- against parting with the property and also due to a case pending in the Kerala Lok Ayukta. The Government by order dated 22.05.2014 reminded the bank of its earlier direction to return the property on the appellants repaying the loan with interest and expenses. A reference was made to Section 56A of the Kerala Co-operative Societies Act, 1969 ['the Act' for short] by the Government therein which related to disposal of non-banking assets. The statutory provision obliges the bank to sell the immovable property within seven years from the acquisition with prior sanction of the General Body and the Registrar. This was followed by a communication of the Registrar dated 20.06.2014 to abide by the orders of the Government since the Kerala Lok Ayukta had disposed of the pending case. 4.W.P(C).No.2640/2013 (from which W.A.No.1170/2016 arises) was filed by the husband and W.P(C).No.31238/2014 (from which W.A. No.1171/2016 arises) was filed by the wife WA1170/2016 & con.cases -: 4 :- challenging the sale. The husband sought to set aside the proceedings including the sale certificate and a direction to the bank to re-convey the property in terms of the orders of the Government. The wife sought a direction to the bank to comply with the order of the Kerala Lok Ayukta which merely stated that the disposal of the property could only be as per Section 56A of the Act. W.P(C).No.18030/2014 (from which W.A.No.1212/2016 arises) was filed by the bank challenging the orders of the Government and also the constitutional validity of Section 56A of the Act. The learned single Judge has by the judgment titled (supra) dismissed W.P(C). Nos.2640/2013 and 31238/2014 and allowed W.P(C).No. 18030/2014. The learned single Judge has in so doing declared that Section 56A of the Act applicable to cooperative banks is unconstitutional being violative of Article 14 of the Constitution of India. 5.We heard Mr.T.B.Hood, Advocate for the appellants, WA1170/2016 & con.cases -: 5 :- Mr.P.C.Sasidharan, Advocate for the bank and also Mrs.K.R.Deepa, Senior Government Pleader. 6.The appellants contend that only such portion of the property as is necessary to satisfy the awards need to have been sold relying on Ambati Narasayya v. M.Subba Rao and another [1989 Supp. (2) SCC 693]. It is not a discretion but an obligation imposed on the bank and the failure to adhere to this course renders the sale liable to be set aside on the ground of irregularity. Our attention was drawn to Rule 85 of the Kerala Co-operative Societies Rules, 1969 ['the Rules' for short] to the effect that sale of immovable property has to be proportionate to the amount due. The appellants could have very well urged this plea in an application filed to set aside the sale on the ground of irregularity or fraud as envisaged in Rule 83 of the Rules. We are not sure as to whether this plea was pointedly urged in the four writ petitions filed by the appellants prior to the sale which were WA1170/2016 & con.cases -: 6 :- eventually dismissed. Even the writ petition filed after the sale was withdrawn though the appellants contend that it was done as part of the settlement with the bank to accept the demand drafts offered. The appellants not having filed any application to set aside the sale on the ground of irregularity in time under Rule 83 of the Rules cannot be heard on that count at all. The conduct of the appellants in not successfully pursuing the five writ petitions challenging the sale of property would certainly act as an estoppel inviting the bar of res judicata. W.P(C).Nos.2640/2013 and 31238/2014 were filed on 28.1.2013 and 21.11.2014 respectively long after the sale on 14.1.2009 disentitling the appellants to any relief on the ground of laches. - 7.The relationship between the appellants and the bank is essentially that of debtor and creditor and the Government has no role in determining their rights crystallized as per the provisions of the Act. The bank has been issued a sale WA1170/2016 & con.cases -: 7 :- certificate after the property was bid in sale in execution of the awards and its possession lawfully delivered over cannot be disturbed by the Government. The Government has no power under the Act to direct the bank to part with the property after accepting the loan amount, interest and expenses incurred from the appellants. The Government can at best exempt the bank from any of the provisions of the Act subject to modifications if it is necessary in public interest under Section 101 of the Act. There is no source of power for the Government to issue the orders dated 27.9.2011 and 17.5.2013 in that regard and the same are quashed as without jurisdiction. The communication dated 20.6.2014 of the Registrar merely echoes the orders of the Government and cannot be treated as part of the general directions under Section 66A of the Act. 8.The learned single Judge has held that Section 56A of the Act is arbitrary and violative of Article 14 of the Constitution WA1170/2016 & con.cases -: 8 :- of India since it applies only to co-operative banks and not to commercial banks. Section 56A of the Act is as follows: “ 56A. Disposal of non-banking assets.- The immovable property acquired by a society through a sale by the sale officer or through any legal proceedings for realisation of loan amount shall be disposed of by the society within seven years from the acquisition with prior sanction of the General Body and the Registrar.”(emphasis supplied) A similar provision can be found in the Banking Regulation Act, 1949 which governs all 'banking companies' (commercial banks) across the country relating to disposal of non-banking assets. Section 9 thereof is as follows: ## “ 9. Disposal of non-banking assets.- WA1170/2016 & con.cases -: 9 :- Notwithstanding anything contained in section 6, no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such period as in this section provided, and such property shall be disposed of within such period or extended period, as the case may be: Provided that the banking company may, within the period of seven years as aforesaid deal or trade in any such property for the purpose of facilitating the disposal thereof: Provided further that the Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years where it is satisfied that WA1170/2016 & con.cases -: 10 :- such extension would be in the interests of the depositors of the banking company.”(emphasis supplied) The object of these statutory provisions is to persuade the co-operative banks or the banking companies to sell the non-banking asset and liquefy the same in cash for it to be available as working capital. Otherwise the non-banking assets would remain as a stumbling block paralyzing the entire banking system thereby producing results which are totally counter-productive. There will be liquidity crunch for the bank either to lend money to the borrowers or to pay interest to the depositors if a sizeable portion of the working capital is sunk in such assets for long. There is no penal provision in the Act if the property is not disposed of within seven years from the acquisition indicating that the prescription of the period is directory. Even the banking companies are obliged to dispose of non-banking assets WA1170/2016 & con.cases ## -: 11 :- within a period of seven years from the acquisition in order to avert stagnation in the business. The Banking Regulation Act, 1949 in fact applies to co-operative banks as well subject to the restrictions contained in Section 3 thereof with regard to certain categories of bank. The co-operative banks are not treated differently from other commercial banks in the disposal of non-banking assets and there is no hostile discrimination as is alleged. 9.The motive of operation of co-operative banks is 'service' whereas the motive of operation of commercial banks is 'profit' and therefore both cannot be treated on par to test the plea of discrimination. The borrowers of the cooperative banks are member share holders having a definite say in the lending policy of the bank obviously on account of their voting power. But the borrowers of the commercial banks are only account holders with no voting power and the lending policy of the bank is governed by the regulations WA1170/2016 & con.cases -: 12 :- of the Reserve Bank of India. The co-operative banks usually cater to the credit needs of agriculturists whereas the commercial banks provide short term finance to industry, trade and commerce. The co-operative banks have comparatively less variety of services and offer lesser rate of interest whereas commercial banks have an array of services and offer slightly higher rate of interest. The co-operative banks is a separate class by itself when compared to the commercial banks and the classification is based on an intelligible differentia. The differentia which is the basis of the classification has a nexus with the object sought to be achieved which is obviously the orderly development of the co-operative sector in the State. (See Shayara Bano v. Union of India [(2017) 9 SCC 1], S. Seshachalam v. Bar Council of Tamil Nadu [(2014) 16 SCC 72] and Union of India v. N.S.Rathnam [(2015) 10 SCC 681]). Article 14 of the Constitution of India comes into play only when the banks in the same class are treated differently and not when they fall WA1170/2016 & con.cases ## -: 13 :- in two distinct classes. We are unable to concur with the learned single Judge that Section 56A of the Act is violative of Article 14 of the Constitution of India and the impugned judgment to that extent is set aside. W.A.Nos.1170/2016 and 1171/2016 are dismissed and W.A.No.1212/2016 is allowed. No costs. Sd/- V. CHITAMBARESH, JUDGE Sd/SATHISH NINAN, JUDGE Sha/260618