S.B. Jayaraj & Others v. Assistant Registrar of Co-operative Societies (G) North Parur, Ernakulam & Others

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **TUESDAY, THE 19TH DAY OF JUNE 2018 / 29TH JYAISHTA, 1940 WP(C).No. 230 of 2018** ## **PETITIONER(S)** ## **1 S.B.JAYARAJ,** **PRESIDENT,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **2 JAYA GOPI,** **VICE PRESIDENT,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **3 A.G.PRASAD, COMMITTEE MEMBER,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **4 A.K.PRADEEP,** ## **COMMITTEE MEMBER,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **5 P.G.RAMESAN,** ## **COMMITTEE MEMBER,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **6 K.S.MOHAN KUMAR, COMMITTEE MEMBER,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **7 BAIJI LALU,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** **8 JINCY RATHEESH, COMMITTEE MEMBER, VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** ## **WP(C).No. 230 of 2018** - **9 A.K.SANTHOSH,** **COMMITTEE MEMBER,** **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298,** - **U.C.COLLEGE P.O., ALUVA-683102.** **BY ADVS.SRI.P.P.JACOB SRI.T.P.GOPAKUMAR** ## **RESPONDENT(S):** **1. THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (G) NORTH PARUR, ERNAKULAM-682017.** **2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (G), ERNAKULAM, CIVIL STATION, B-2 BLOCK, 5TH FLOOR, KAKKANADU, KOCHI-682030.** ## **3. THE ADMINISTRATOR,** - **VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102.** **4. THE VELIYATHUNAD SERVICE CO-OPERATIVE BANK LTD.NO.E 298, U.C.COLLEGE P.O., ALUVA-683102, REPRESENTED BY ITS SECRETARY.** ## *** ADDL.R5 IMPLEADED** **5. ABDUL MALIK,** - **AGED 61 YEARS, S/O. V.H. ALIKUNJU, SIDDIQUE MANZIL, WEST VELIYATHUNADU P.O, PIN-683 511, ERNAKULAM DISTRICT** - **ADDL.R5 IS IMPLEADED AS PER ORDER DATED 25/5/2018 IN I.A.NO. 1070/2018.** **R1 & R2 BY SPECIAL GOVERNMENT PLEADER SRI.K.I.MOHAMMED HASHIM R3 & R4 BY ADV. SRI.N.RAGHURAJ** **R5 BY ADV. SRI.M.SASINDRAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25.05.2018, THE COURT ON 19.6.2018 DELIVERED THE FOLLOWING:** ## **PBS** ## **WP(C).No. 230 of 2018 (C)** ## **APPENDIX** **PETITIONER(S)' EXHIBITS** - **EXHIBIT P1 TRUE PHOTOCOPY OF THE COMPLAINT FILED BY THREE PERSONS BEFORE THE MINISTER FOR CO-OPERATION DATED NIL.** - **EXHIBIT P2 TRUE PHOTOCOPY OF THE LETTER ISSUED BY THE FIRST RESPONDENT DATED 8.8.2016. EXHIBIT P3 TRUE PHOTOCOPY OF THE ORDER ISSUED BY THE SECOND RESPONDENT DATED 18.8.2016. EXHIBIT P4 TRUE PHOTOCOPY OF THE REPORT FILED BY THE ENQUIRY OFFICER BEFORE THE SECOND RESPONDENT DATED 28.10.2016. EXHIBIT P5 TRUE PHOTOCOPY OF THE NOTICE DATED 22.11.2016 ISSUED BY THE SECOND RESPONDENT. EXHIBIT P6 TRUE PHOTOCOPY OF THE STATEMENT FILED BY THE PETITIONERS BEFORE THE SECOND RESPONDENT DATED 30.11.2016. EXHIBIT P7 TRUE PHOTOCOPY OF THE NOTICE DATED 12.4.2017 ISSUED BY THE SECOND RESPONDENT. EXHIBIT P8 TRUE PHOTOCOPY OF THE RESOLUTION DATED 3.5.2017 OF THE PETITIONERS BANK. EXHIBIT P9 TRUE PHOTOCOPY OF THE RESOLUTION NO. 2 DATED 21.12.204 OF THE PETITIONERS BANK. EXHIBIT P10 TRUE PHOTOCOPY OF THE ORDER ISSUED BY THE SECOND RESPONDENT DATED 22.9.2017 WITH COVERING LETTER. EXHIBIT P11 TRUE PHOTOCOPY OF THE ORDER ISSUED BY THE SECOND RESPONDENT DATED 13.12.2017. EXHIBIT P12 TRUE PHOTOCOPY OF THE INTERIM REPLY FILED BY THE PETITIONERS DATED 20.12.2017. EXHIBIT P13 TRUE PHOTOCOPY OF THE LEGAL OPINION DATED 30.7.2008. EXHIBIT P14 TRUE PHOTOCOPY OF THE RESOLUTION NO.17 DATED 9.8.2016 ALONG WITH LETTER DATED 19.8.2016. EXHIBIT P15 TRUE PHOTOCOPY OF THE REMINDER DATED 29.12.2017 SUBMITTED BY THE PETITIONERS.** ## **WP(C).No. 230 of 2018 (C)** - **EXHIBIT P16 TRUE PHOTOCOPY OF THE ORDER ISSUED BY THE SECOND RESPONDENT DATED 1.1.2018.** **EXHIBIT P17 TRUE PHOTOCOPY OF THE QUICK VERIFICATION REPORT DATED 18.11.2016 FILED BY THE DEPUTY SUPERINTENDENT OF POLICE BEFORE VIGILANCE COURT, MOOVATTUPUZHA.** **EXHIBIT P18 TRUE PHOTOCOPY OF THE ENCUMBRANCE CERTIFICATE DATED 27.3.2013 ISSUED FROM CHENGAMANAD SUB REGISTRY.** **EXHIBIT P19 TRUE PHOTOCOPY OF THE INTIMATION SENT BY THE COMPETENT AUTHORITY DATED 16.5.2009 VIDE NO. ATF 55/2009 TO THE LOANEES.** ## **RESPONDENT'S EXHIBITS** **EXHIBIT R2(A) A TRUE COPY OF THE REPLY SUBMITTED ON 30.11.2016.** **EXHIBIT R2(B) A TRUE COPY OF THE NOTICE DATED 19.12.2016.** **EXHIBIT R2(C) A TRUE COPY OF THE REPLY DATED 22.03.2017 SUBMITTED BY C.N.GOPAKUMAR.** **EXHIBIT R2(D) TRUE COPY OF THE LETTER ISSUED TO THE BANK ON 30.12.2017.** **EXHIBIT R2(E) TRUE COPY OF THE “NO OBJECTION” ISSUED TO THIS RESPONDENT BY THE CIRCLE CO-OPERATIVE UNION AND GENERAL MANAGER, ERNAKULAM DISTRICT CO-OPERATIVE BANK.** **EXHIBIT R2(F) TRUE COPY OF THE 1ST PAGE OF AUDIT REPORT FOR THE YEAR 2016-17.** **EXHIBIT R3(A) TRUE PHOTOCOPY OF THE COVERING LETTER DATED 22.12.2017. EXHIBIT R3(B) TRUE PHOTOCOPY OF THE LIST OF THE SELECTED CANDIDATES** **/TRUE COPY/ PS TO JUDGE** **PBS 19/6/2018** ## **ANU SIVARAMAN, J. ----------------------------------------------W.P(C).No. 230 of 2018 ----------------------------------------------Dated this the 19[th] day of June, 2018** ## **JUDGMENT** The petitioners, who are members of the elected committee of the 4[th] respondent Co-operative Society, have approached this Court challenging Exhibit P16 order of supersession. It is contended by learned counsel for the petitioners that Exhibit P16 was issued on the sole ground that the committee in which the petitioners are members, did not take steps to close the loan accounts in which certain irregularities had been alleged. It is contended that with regard to the properties in question, civil disputes are pending and that on being alerted that no amount had been repaid by the persons who availed the loans, a decision had been taken to file ARCs. It is submitted that the ARCs had already been filed and are pending for consideration. It is stated that the loans were availed in 2014 and the finding in Exhibit P16 to the effect that in spite of the directions issued on 12.4.2017, the loans had not been closed cannot be a reason to supersede a lawfully elected committee of the Society. 2. A counter affidavit has been filed on behalf of the 2[nd] respondent contending that the loans had been granted by the 2 _**WP(C).230/18**_ previous committee, but the identity of the President and most of the members of the committee was the same. It is stated that three members had filed a written complaint before the Registrar regarding the issuance of the loans alleging that there is collusion between the members of the Managing Committee and the persons who had illegally availed the loan in question. It is stated that the Bank was aware of the pendency of O.S.No.360 of 2014 before the Munsiff's Court, Paravur with regard to the ownership of the property and the validity of the title deeds pledged with the Bank. It is stated that it was on a finding that no steps had been taken for closing the loan accounts in spite of the repeated directions given by the 2[nd] respondent that Exhibit P16 order of supersession had been issued. It is stated that a part-time administrator was appointed on 1.1.2018 and he is in charge of the administration of the affairs of the Society. The additional 5[th] respondent has also filed a counter affidavit. 3. Heard learned counsel for the petitioner and the learned Government Pleader as well as the learned counsel appearing for the additional 5[th] respondent. 4. Learned counsel for the petitioner would contend that it is trite law that it is only on a satisfaction entered by the Joint 3 _**WP(C).230/18**_ Registrar as to willful disobedience to the directions issued by a competent authority or on the ground of misappropriation or mal administration that an order of supersession can be issued. It is contended that in the instant case, the only issue that is borne out is that there are civil cases in respect of the documents relating to the five loans availed. It is stated that there is a civil case pending in the matter between the 5[th] respondent on the one hand and the persons who had availed the loan from the 4[th] respondent on the other hand. The Joint Registrar had directed the closing of the loans in question. The persons who had availed the loans had not closed the loans, nor had they repaid the loans. In the above view of the matter, it is stated that a decision had been taken to prefer ARCs for realisation of the amounts due on 3.5.2017. It is stated that the decision taken to supersede the committee on 1.1.2018 was therefore completely without any justification and was unsustainable. The 2[nd] respondent had been specifically told that the directions issued had been complied with and ARCs had been filed. Since it is an admitted fact that the loans had been granted by the previous committee, it is submitted that the present committee cannot be superseded even if some of the members of the two committees are the same. 4 _**WP(C).230/18**_ 5. The learned Government Pleader would submit that there was clear conspiracy between the members of the Managing Committee and the persons who had availed the loans from the Society and that this had resulted in the issuance of loans without a proper verification or authorisation. It is stated that the pendency of the civil dispute was known to the Society and that the issuance of the loans in the said circumstances was clearly to defeat the interests of the 4[th] respondent Society. It is stated that where such serious allegations are raised, one instance of misappropriation or disobedience of orders is all that is required if it is found that the members of the committee had acted with ulterior motives. Relying on the findings in Exhibit P16 order, it is contended that the instant case requires urgent action under Section 32(1) of the Kerala Co-operative Societies Act, 1969 ('the Act' for short). 6. The learned counsel appearing for the additional 5[th] respondent would contend that it was on being fully aware of the existence of the civil dispute with regard to the title to the property that the Committee of the Society had decided to grant loans in respect of the same properties. It is stated that the continued inaction on the part of the members of the 5 _**WP(C).230/18**_ Committee to take appropriate action for recovery of the amounts due under the loan accounts would point to their complicity in the matter. 7. I have considered the contentions advanced. Section 32(1) of the Act reads as follows: “ _32._ _**Supersession of committee.-** (1) If the Registrar, after an inquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance, and Anticorruption Bureau of the Government or the Vigilance Officer or otherwise, is satisfied that the committee of any society,-_ _(a) persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or the bye-laws or does anything which is prejudicial to the interests of the society; or_ _(b) wilfully disobeys or fails to comply with any lawful order or direction issued under this Act or the rules; or_ _(c) makes any payment contrary to this Act or the rules or the byelaws or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence; or_ _(d) misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice,_ _he may, after giving the committee an_ 6 _**WP(C).230/18**_ _opportunity to state its objections, if any, by order in writing, remove the committee and appoint in its place, one administrator or an administrative committee consisting of not more than three individuals, one among them as convener, wo need not be members of the society, to manage the affairs of the society for a period nor exceeding six months._ _(e) Every member of the committee superseded under this section shall from the date of order of such supersession stand disqualified to contest in the election to or to be nominated to the committee of any Society or to be appointed as an administrator in any society for two consecutive terms.”_ ## 8. The Apex Court in _**State of M.P v. Sanjay Nagayach**_ [2013(2) KLT 733] has clearly held that Co-operative Societies are intended to be administered by democratically elected committees and the supersession of a Committee can only be done in exceptional circumstances and on proved instances of misappropriation or disregard for lawfully passed orders leading to loss to the Society. The general directions given by the Apex Court in the above case are as follows: _“35. Further, we are inclined to give the following general directions in view of the mushrooming of cases in various Courts challenging orders of supersession of elected Committees:_ 7 _**WP(C).230/18**_ - _1) Supersession of an elected managing Committee/Board is an exception and be resorted to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected._ - _2) Elected Committee in office be not penalised for the short-comings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous committees._ - _3) Elected Committee in Office be given sufficient time, say at least six months, to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office._ - _4) Registrar/Joint Registrar are legally obliged to comply with all the statutory formalities, including consultation with the financing banks/Controlling Banks etc. Only after getting their view, an opinion be formed as to whether an elected Committee be ousted or not._ - _5) Registrar/ Joint Registrar should always bear in mind the consequences of an order of supersession which has the effect of not only ousting the Board out of office, but also disqualify them for standing for election in the succeeding elections. Registrar/Joint_ 8 _**WP(C).230/18**_ _Registrar therefore is duty bound to exercise his powers bona fide and not on the dictation or direction of those who are in power._ - _6) Registrar/Joint Registrar shall not act under political pressure or influence and, if they do, be subjected to disciplinary proceedings and be also held personally liable for the cost of the legal proceedings._ - _7) Public money not to be spent by the State Government or the Registrar for unnecessary litigation involving disputes between various factions in a co-operative society. Tax payers money is not expected to be spent for settling those disputes. If found necessary, the same be spent from the funds available with the concerned Bank.”_ 9. In the instant case, it is clear that the loan was granted by the previous Committee, since the present Committee was elected only on 22.6.2014. It appears from Exhibit P16 order that the allegations now raised are with regard to the wrongful grant of the loans. It has been held repeatedly by this Court and by the Apex Court in _**Sanjay Nagayach's case (supra)**_ that the elected committee of a Society cannot be superseded for omissions and commissions of a previous committee, even though some of the members are the same. Further, what is stated in Exhibit P16 is that in spite of instructions, one of which being on 12.4.2017, the petitioners had not taken steps 9 _**WP(C).230/18**_ for closure of the loan accounts. The petitioners have a specific case that a decision had been taken to file ARCs on 3.5.2017 and that such cases had actually been filed. If that be so, the supersession of the Committee on the ground that lawful directions had not been complied with cannot be sustained for the simple reason that the said order of supersession is one issued on 1.1.2018, much after the said directions had been complied with to the best of the ability of the Society and the members of its Committee. It is also noticed that there is no contention to the effect that the ARCs filed by the Societies have either become time barred or that the delay in filing the ARCs has resulted in any loss to the Society. In the above view of the matter, since the only allegation which can be attributed to the present Committee is that it did not take steps in time to realise the loan amounts which had fallen in arrears and since it is not disputed that the ARCs had actually been filed an orders of attachment obtained, I am of the opinion that the order of supersession would be unsustainable. In the facts and circumstances of this case, the further allegation that the consultation with the Co-operative Society was not a lawful consultation in terms of Section 32(1) of the Act does not have to be considered. 10 _**WP(C).230/18**_ In the result, Exhibit P16 is set aside. The respondents shall hand over the administration of the Society to the Committee comprising of the petitioners forthwith. The writ petition is ordered accordingly. Sd/- **ANU SIVARAMAN JUDGE** _vgs_