The Managing Committee Chengala Service Co-operative Bank Ltd. No. S-66, Cherkala (Head Office) v. Joint Registrar of Co-operative Societies (General), Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V** **MONDAY, THE 02ND DAY OF NOVEMBER 2020 / 11TH KARTHIKA, 1942** ## **WP(C).No.22567 OF 2020(U)** ## **PETITIONER:** **THE MANAGING COMMITTEE THE CHENGALA SERVICE CO-OPERATIVE BANK LIMITED NO.S 66, CHERKALA (HEAD OFFICE), CHENGALA POST OFFICE, KASARGOD DISTRICT, PINCODE-671 541, REPRESENTED BY ITS PRESIDENT** **BY ADVS. SRI.GEORGE POONTHOTTAM (SR.) SRI.ARUN CHANDRAN SRI.RIJI RAJENDRAN SMT.NISHA GEORGE SRI.J.VISHNU SRI.VISHNU B.KURUP SRI.A.L.NAVANEETH KRISHNAN KUM.CHITHRA P.GEORGE** ## **RESPONDENT:** **THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL)** **OFFICE OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) CIVIL STATION VIDYA NAGAR POST OFFICE, KASARGOD DISTRICT, PINCODE-671 123** ## **SRI KP HARISH, SR GP** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 02.11.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.22567 OF 2020 2** ## **JUDGMENT** The Managing Committee of the Chengala Service Cooperative Bank Ltd. No. S-66 is before this Court impugning Ext.P1 notice issued by the respondent under Section 32 (1) of the Kerala Co-operative Societies Act, 1969 (“the Act” for short). 2. It appears that by Ext.P2 proceedings dated 13.4.2020 an inquiry under Section 65 of the Act was ordered by the respondent herein into the constitution, working and financial condition of the society when certain serious discrepancies were found in the functioning of the bank. The Assistant Registrar had reported that a sum of Rs.84,61,900/- had been pilfered from the bank by Sri. Vijayakumar who was working as the Accountant in the Bank. Much later, on 5.5.2020, a complaint was lodged by the Vice President of the Managing Committee before the respondent herein. It appears that the inquiry under Section 65 of the Act was concluded and Ext.P4 report was submitted before the respondent. On receipt of the said report, the respondent, being satisfied that the grounds mentioned under subsection (1)(a) to (d) of Section 32 of the Act were made out, issued Ext.P1 calling upon the Managing Committee to show **WP(C).No.22567 OF 2020 3** cause why the Committee shall not be superseded. On receipt of the notice, the petitioner has approached this Court with this writ petition mounting their challenge to Ext.P1. 3. I have heard Sri. George Poonthottam, the learned Senior Counsel appearing for the petitioner as instructed by Sri. Arun Chandran, the learned counsel and Sri. K.P.Harish, the learned Government Pleader. 4. It is submitted by Sri.George Poonthottam, the learned Senior Counsel that the entire manipulation of the accounts was carried out by Sri. Vijayakumar, who was working as the Accountant in the Society and it is he who had misappropriated the entire amounts. All that is attributed against the Managing Committee is only a supervisory lapse. The learned Senior Counsel would take pains to point out that Sri. Vijayakumar was very tech savvy and he had misappropriated the amount of about Rs.80 lakhs using his skill and expertise in computers. Even the department officials, who had conducted the audit during the previous years were not able to detect the misappropriation. He would further contend that even the inquiry officer, who was authorised by the respondent to conduct the enquiry, had to obtain assistance from various software firms to understand the manner in which misappropriation was carried out by the employee. It is further contended that as and when the defalcation of amount was **WP(C).No.22567 OF 2020 4** noticed, the managing committee made efforts to recover the amount and they were even successful in persuading the errant employee in refunding a sum of about Rs.58 lakhs. Later, he was terminated from service as well. According to the learned Senior Counsel, the other acts of dereliction and lapse of duty alleged against the managing committee cannot be sustained. It is contended that nowhere in Ext.P1 has it been mentioned that the respondent had satisfied himself about the requirement to initiate action under Section 32(1) of the Act. According to the learned counsel, the essential prerequisites for initiating an action like persistent default, negligence in the performance of duties, actions which are prejudicial to the interest of the society, wilful disobedience or failure to comply with lawful order or direction etc. are absent in Ext.P1. It is further contended that in Ext.P4 report filed on the conclusion of the inquiry under Section 65 of the Act, there is no finding that there are major defects in the constitution, working or financial condition of the society. The learned counsel would refer to the report in **State of Kerala v. Urukunnu Service Co-operative Bank Ltd.** [2013 (2) KLT 74] and it was argued that for invoking clause (a) of sub-section (1) of Section 32 of the Act, it is not sufficient to merely hold that the managing committee had committed a default or is negligent in the performance of the duties imposed on it by **WP(C).No.22567 OF 2020 5** the Act or the Rules or Bye-laws, but such default should be shown to be persistent and must be prejudicial to the interest of the society as well. Apart from the same, findings on the culpability of the committee on their improper action should inform the action of the Registrar while initiating proceedings under Section 32. According to the learned counsel, a mere finding that the committee has done the acts alleged alone is not sufficient but the same should be supported by a further finding that they did the same with a culpable mind, failing which the action of the Registrar would be improper. The learned counsel would also place reliance on the judgment of the Apex Court in **State of Madhyapradesh and Others v. Sanjay Nagayach and Others** [(2013) 7 SCC 25] and it was argued that when a statutory authority like the respondent herein, who is invested with powers, purports to act on its own but in substance the power is exercised by external guidance or pressure, it would amount to non-exercise of power. 5. Sri.K.P.Harish, the learned senior Government Pleader has vehemently opposed the prayer. He would refer to Ext.P1 and it is argued that the Registrar, who is the Principal statutory authority under the Act has looked into the entire records including the report of enquiry under Section 65 of the Act and the said authority was satisfied that it was necessary to **WP(C).No.22567 OF 2020 6** call to afford the petitioner an opportunity to state its objections. Instead of appearing before the respondent and furnishing its explanation, the petitioner has rushed to this Court to interdict the proceedings. He would refer to Exhibit P1 and it was argued that before issuing Exhibit P1, the Registrar was satisfied that there was persistent default and negligence of the present managing committee in the performance of the duties imposed on it by the Act, the Rules and the bye-laws of the Society. It is argued that the enquiry report revealed that there were serious lapses on the part of the members of the managing committee in taking appropriate measures to ensure that misappropriation of the nature committed by the delinquent employee did not happen. The delinquent employee was granted unlimited access to the bank accounts, user id’s and passwords, he was permitted to open several accounts in his own name and in the name of his own wife and that he had transferred huge sums of money by electronic transfer. Though the fact of misappropriation of huge sums of money was known to the members of the managing committee as early as on 12.3.2020, no information was given to either the Police or to the authorities. It is also revealed that loans were disbursed against the provisions of the bylaws and also against the interests of the bank. It is contended that it is the duty of the managing committee to see that the officers concerned **WP(C).No.22567 OF 2020 7** discharge the functions and duties as laid down in the Rules and bylaws and that a statutory duty is cast on the committee of the Society for the proper functioning of the society and to account the cash and assets. According to the learned Government Pleader, the petitioner cannot wash off their hands by placing the entire blame on the delinquent employee. He would refer to the report in **Rajeev Koshy vs. State of Kerala and Ors.** [ILR 2018 (2) Ker. 999] and it was argued that the members of the committee have no right to mismanage the affairs of a co-operative society particularly when they are dealing with precious money of investors of the local area where the bank is functioning. According to the learned Government Pleader the remedy as contemplated under the statute should ordinarily be resorted to in view of the serious nature of the allegations against the petitioner. He would contend that only if the findings against the committee are such that the continuance of the committee would be extremely prejudicial to the interest of the society that the exceptional and rare action under Section 32 can be taken by the respondent. Finally, relying on the judgment of the Hon’ble Supreme Court in **Manish S Pardasani(M/s Wine Komder) v. Inspector State Excise and others** [(2019) 2 SCC 660], it is contended that this Court will not be justified in issuing directions merely on anticipation of an order being passed by the **WP(C).No.22567 OF 2020 8** Joint Registrar. 6. I have anxiously considered the submissions advanced. I find that the challenge in this petition is to the notice issued by the respondent under Section 32(1) of the Act. Unless exceptional cause is made out, this Court would refuse to exercise its discretionary jurisdiction by entertaining a writ petition questioning a notice to show cause. In the case on hand, the petitioner has no case that the order suffers from any jurisdictional infirmity or any other error. The only assertion of the petitioner is that an adverse order would be passed by the respondent and the society would be superseded. I am of the considered opinion that such apprehension is misconceived. It would also not be proper for this Court to delve into the allegations against the petitioner in Exhibit P1 in detail as it is likely to cause prejudice to the petitioner while their objections are being heard by the respondent. 7. In **Manish S Pardasani** (supra) **,** the Supreme Court had deprecated the issuance of directions which are essentially passed in anticipation of the order passed by an appellate authority, observing that such orders would interfere with the independence of the authority in deciding the matter before it in accordance with law. It was held thus in para 64 to 67. **WP(C).No.22567 OF 2020 9** ‘64. We find that the High Court while disposing of the Writ Petitions also passed the following writ / directions in Para 20 which reads as under: “Since an apprehension is expressed and a serious one by the petitioners, we direct that in the event the fourth respondent passes any orders adverse to the petitioners, then such orders shall not take effect for a period of four weeks from the date they are communicated to the petitioners. Since we have set aside the fourth respondent's interim order and for the present not expressed any opinion on the contentions raised before us, interest of justice demands that the sealing of the premises by the authorities should be set aside. Therefore, the Superintendent or other functionary is directed to remove the seal, lock and key placed on the premises forthwith. This order will ensure to the benefit of such of the petitioners whose licenses are subsisting and are not cancelled. The other licences, which are no longer in operation on account of their termination, the holders thereof cannot avail the benefit of this order. However, we do not express any opinion on the remedies that are available to them and they can avail them as observed and held in the above paragraphs.” (Emphasis Supplied) 65. In our considered view, the High Court ought not to have issued directions of this nature. It was legally not permissible to do so. Indeed, the High Court by issuing such directions which are essentially passed in anticipation of the the order being passed by an appellate authority, interfered with the judicial independence of an appellate authority in deciding the appeals in accordance with law. 66. It is the sole discretion of the appellate authority under the Act to decide the appeal based on the facts involved in the appeal, and legal provisions which eventually result in passing a judicial order. No higher court can pass such directions merely on anticipation of an order being passed by an appellate authority. It is only after the order is passed, that the aggrieved person has a legal right to take recourse **WP(C).No.22567 OF 2020 10** to a legal remedy available in law against such order by approaching to a higher forum and pray for grant of appropriate relief against such order. 67. This stage in this case is yet to arrive. The High Court should not have, therefore, pre-empted the passing of any order of the appellate authority, while deciding the Writ Petition. It is a settled law that the Court can stay or quash only those orders, which are impugned in the lis before it. A fortiori the Court cannot stay or/and quash the orders in anticipation before they are passed. We cannot, therefore, uphold such writ/directions issued by the High Court.’ 8. Since the matter is now pending consideration of the respondent, this Court in the light of the law laid down by the Apex Court will not be justified in issuing any directions merely in anticipation of an adverse order being passed. If the petitioner is aggrieved by the order passed by the respondent he has a legal right to take recourse to a legal remedy available in law against such an order. 9. In view of the apprehension expressed by the petitioner that the proceeding initiated under Section 32(1) is premeditated and with a view to supersede the elected committee, the respondent shall do well to remind itself of the principles laid down by the Apex Court as well as this Court. 10. In **Sanjay Nagayach** (supra), the Supreme Court had **WP(C).No.22567 OF 2020 11** occasion to observe that supersession of an elected Managing Committee is an exception and can be resorted only in exceptional circumstances and normally the elected body should be allowed to complete the term for which it is elected. In paragraph No.42 of the judgment, the Apex Court had issued general directions taking note of the mushrooming of cases in various Courts challenging orders of supersession of elected Committees: The general directions are extracted below for easy reference. ‘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 shortcomings 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 Registrar therefore is duty bound to exercise his powers bona fide and **WP(C).No.22567 OF 2020 12** 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.’ ## 11. In **Vallapuzha Service Cooperative Bank Ltd. v. Joint** **Registrar** [2009 (3) KLT 838], this Court had observed that supersession of a democratically elected committee is a very drastic and extreme step. It is not necessary to cite any judicial precedents to hold that action under Section 32 of the Act cannot therefore be taken lightly for mundane violations. Only if the findings against the Committee are such that the continuance of the Committee would be extremely prejudicial to the interests of the Society, the exceptional and rare action under Section 32 of the Act shall be taken. Findings on the culpability of the Committee on their improper action should inform the action of the Registrar while initiating proceedings under Section 32 of the Act. In other words, the mere finding that the Committee has done the acts alleged alone is not sufficient; the same should be supported by a further finding that they did the same with a culpable mind, failing which the action of the Registrar would be **WP(C).No.22567 OF 2020 13** improper. 12. In **Krishnan Nair v Joint Registrar of Cooperative Societies** [2014 (1) KLT 116], this Court had occasion to hold further that for invoking clause (a) of sub-section (1) of Section 32, it is not sufficient to merely hold that the managing committee had committed a default or is negligent in the performance of the duties imposed on it by the Act or the Rules or Bye-laws, but such default should be shown to be persistent and must be prejudicial to the interest of the society as well. The mere finding that the committee has done the acts alleged alone is not sufficient; the same should be supported by a further finding that they did the same with a culpable mind, failing which the action of the Registrar would be improper. 13. In the light of the law laid down by this Court as well as the Apex Court, the respondent shall take a decision after hearing the objections of the petitioner. 14. At this stage Sri George Poonthottam, the learned Senior Counsel submitted that the petitioners have been called upon to appear on 6.11.2020 to state their objections. He prays that a breathing time be granted to appear before the respondent. **WP(C).No.22567 OF 2020 14** 15. Having considered the fervent request of the learned senior counsel appearing for the petitioner I direct the respondent to grant a further period of one week to the petitioner to appear before him and to state their objections. The learned counsel asserts that the committee members shall appear at 11 AM on 10.11.2020 before the respondent. The respondent shall consider their objection, in the light of the legal precedents above and proceed in consonance with law. ## **Sd/-** ## **RAJA VIJAYARAGHAVAN V** **JUDGE** sru **WP(C).No.22567 OF 2020 15** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **EXHIBIT P1 TRUE COPY OF THE PROCEEDINGS NO CRP 397/2020 DATED 14.10.2020 ISSUED BY THE RESPONDENT** - **EXHIBIT P2 TRUE COPY OF THE PROCEEDINGS NO CRP 397/2020 DATED 13.04.2020 ISSUED BY THE RESPONDENT** - **EXHIBIT P3 TRUE COPY OF THE ORDER NO.C.R.P.397/2020 DATED 11.08.2020 ISSUED BY THE RESPONDENT** - **EXHIBIT P4 TRUE COPY OF THE REPORT ON INQUIRY SUBMITTED ON 29.09.2020 BEFORE THE RESPONDENT JOINT REGISTRAR** - **EXHIBIT P5 TRUE COPY OF THE MEMORNADUM OF AUDIT AND CERTIFICATE OF AUDIT DATED 24.08.2019** - **EXHIBIT P6 TRUE COPY OF THE PROCEEDINGS NO.CSCB/EST/2020/18 DATED 23.09.2020 ISSUED BY THE BANK** - **EXHIBIT P7 TRUE COPY OF THE DECISION OF THE GENERAL BODY DATED 30.09.2017** - **EXHIBIT P8 TRUE COPY OF THE ORDER NO.CRP/4289/2009 DATED 14.10.2009 ISSUED BY THE RESPONDENT JOINT REGISTRAR** - **EXHIBIT P8A TRUE COPY OF THE ORDER NO.CRP 5307/2015/K.DIS DATED 30.12.2015 ISSUED BY THE RESPONDENT JOINT REGISTRAR** - **EXHIBIT P9 TRUE COPY OF THE ORDER NO.CRP 2513/2014/K.DIS DATED 09.06.2014 ISSUED BY THE RESPONDENT JOINT REGISTRAR** - **EXHIBIT P9A TRUE COPY OF THE ORDER NO.CRP 770/2017/K.DIS DATED 22.03.2017 ISSUED BY THE RESPONDENT JOINT REGISTRAR** **WP(C).No.22567 OF 2020 16** ## **EXHIBIT P10** **TRUE COPY OF THE INTERIM ORDER DATED 29.01.2020 IN W.P.(C) NO.2435 OF 2020 PASSED BY THIS HON'BLE COURT** ## **RESPONDENTS EXHIBITS:NIL** **//TRUE COPY//** **P.A TO JUDGE**