Thiruvananthapuram Regional Cooperative Milk Producers Union v. Director, Dairy Development Department

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN** **WEDNESDAY,THE 06TH DAY OF FEBRUARY 2019 / 17TH MAGHA, 1940** **WP(C).No. 2529 of 2017** ## **PETITIONER:** **THIRUVANANTHAPURAM REGIONAL CO-OPERATIVE MILK PRODUCERS UNION.** **REPRESENTED BY ITS MANAGING DIRECTOR, KSHEERA BHAVAN, PATTOM, THIRUVANANTHAPURAM.695004.** **BY ADV. SRI.P.N.MOHANAN** ## **RESPONDENT:** **THE DIRECTOR.** **DAIRY DEVELOPMENT DEPARTMENT, KSHEERA BHAVAN, PATTOM, THIRUVANANHAPURAM.695004.** **BY GOVERNMENT PLEADER SRI. JAFAR KHAN M.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 12.11.2018,THE COURT ON 06.02.2019,DELIVERED THE FOLLOWING:** 2 WPC 2529 OF 2017 ## **JUDGMENT** The petitioner, namely, Thiruvananthapuram Regional Cooperative Milk Producers Union, which is a Society registered under the Kerala Co-operative Societies Act, 1969 and the Rules made thereunder has filed this writ petition under Article 226 of the Constitution of India, seeking a writ of certiorari to quash Ext.P1 Circular No.13/2016 dated 22.08.2016 issued by the respondent Director of Dairy Development and Ext.P3 order dated 03.11.2016 of the said respondent, whereby the petitioner is informed that constitution of sub committees is improper and as such, no sub committees can be constituted contrary to the bye-laws of the petitioner Union. The petitioner has also sought for a declaration that the respondent has no power under subsection (5) of Section 66 of the Kerala Co-operative Societies Act to issue Ext.P1 circular and Ext.P3 order directing to scrap the sub committees provided by the bye-laws of the petitioner Union. 2. On 25.01.2017, when this writ petition came up for 3 WPC 2529 OF 2017 admission, this Court admitted the matter on file and issued urgent notice to the respondent. This Court granted an interim stay of Ext.P3 order dated 03.11.2016 of the respondent, as prayed for, and the said interim order is still in force. 3. A counter affidavit has been filed by the respondent, on 22.02.2017, opposing the reliefs sought for in this writ petition. Along with the said counter affidavit, the relevant extracts of the bye-laws of the petitioner Union are placed on record as Ext.R(a) and Ext.R(b). The 1[st] respondent has also filed an additional counter affidavit dated 24.05.2018 producing therewith a copy of letter dated 12.01.2018 of the National Dairy Development Board as Ext.R1(d) and a copy of letter dated 19.03.2018 of the Managing Director in-charge of Malabar Regional Co-operative Milk Producers' Union Ltd. as Ext.R1(e). 4. Heard the learned counsel for the petitioner and also the learned Government Pleader appearing for the respondent. 5. The petitioner is a Central Society registered under the Kerala Co-operative Societies Act and the Rules made thereunder. The area of operation of the petitioner Union is 4 WPC 2529 OF 2017 Thiruvananthapuram, Kollam and Pathanamthitta Districts. The Primary Milk Producers Societies are the members of the petitioner Union. Other than the petitioner Union, there are two Regional Milk Producers Unions, i.e., Ernakulam Co-operative Milk Producers Union and Malabar Regional Co-operative Milk Producers Union. For the Regional Milk Producers Unions, there is an Apex Body, namely, the Milk Marketing Federation. 6. The petitioner Union has filed this writ petition, feeling aggrieved by Ext.P1 circular No.13/2016 dated 22.08.2016 issued by the respondent Director of Dairy Development. On receipt of Ext.P1 Circular, the petitioner submitted Ext.P2 reply dated 05.09.2016, wherein it was pointed out that there are two sub committees in the petitioner Union. One among that sub Committees is 'Accounts Committee' and the other is 'Purchase Committee. In addition to this, sub committees are constituted for various purposes, for example, to found out the Primary Societies which are functioning properly, in order to award cash prizes; to select the best producers, etc. Thereafter, the petitioner was issued with Ext.P3 order dated 03.11.2016, 5 WPC 2529 OF 2017 whereby it was informed that constitution of Sub Committees are improper and the same has to be discontinued. 7. In paragraph 4 (at page No.5) of the writ petition it is averred that the sub committees are constituted as provided in - the bye laws of the petitioner Union. So long as there is a - provision in the bye laws, which is approved by the Department for constitution of sub committees for various purposes, the respondent has no power to issue directions to scrap the sub committees constituted as per the provisions in the bye-laws. 8. Though it is averred in the writ petition that there is a provision in the bye-laws which is approved by the Department for constitution of sub committees for various purposes, the petitioner has not chosen to produce a copy of that bye-laws along with the writ petition. The relevant extract of the bye-laws of the petitioner Union is placed on record along with the counter affidavit filed by the respondent, as Exts.R(a) and R(b). Clause 21.0 of Ext.R(a) bye-laws of the petitioner Union deals with powers, responsibilities and functions of the Board, Personnel Committees, appointment of Managing Director, etc. As per 6 WPC 2529 OF 2017 clause 21.1, the powers to decide the entire policies of the Union shall rest with the Board. The Board shall have and exercise all powers and shall enter in to agreements, make arrangements and do all such acts and things as may be necessary or proper for carrying out the objectives for which the Union is established and for securing and furthering its interest subject to the provisions of the Act and the Rules or such Act as shall hereafter take its place and any rule which may be passed by the State Government in pursuance of the Act and Rules and subject to the bye-laws and/or any bye-laws which may be duly made by the Union. 9. Clause 21.2.13 of the bye-laws deals with constitution of a Personnel Committee consisting of those specified therein. Clause 21.2.13 of the bye-laws of the petitioner Union reads thus; - “1. A Nominee of Director of Diary Development. 2. The Managing Director of the Union. 3. A Representative of the Federation to which the Union is affiliated. 4. A Representative of the National Diary Development Board. 5. Chairman of the Union. 7 WPC 2529 OF 2017 The Personnel Committee is responsible for recommending Staff Rules, Staff requirements, qualifications, experience, job requirements, scales, etc. The recommendations of Personnel Committee shall be finalized and passed by the Board and got approved by the director of Diary Development. After the approval of recommendations of the Personnel Committee, the Managing Director shall invite applications for recruitment of the Staff and Personnel Committee shall recruit suitable candidates. The list of candidates thus selected by the Personnel Committee shall be finalized and approved by the Board before the appointment is made. “Not withstanding any thing contained above (21.2.13), the role of the representative of the National Diary Development Board shall be limited to participation as a panel member for selection fo the Managing Director of the Milk Union”. (Underline supplied) 10. Clause 21.2.14 of the bye-laws provides that the Personnel Committee constituted under clause 21.2.13 shall be responsible for selection of candidates for all posts except the Managing Director. 11. Clause 21.2.15 of the bye-laws, which deals with Personnel Committee for the appointment of Managing Director, reads thus; 8 WPC 2529 OF 2017 “For selection and recruitment of Managing Director, the Personnel Committee shall consist of the following members; 1. Chairman of the Union. 2. Representative of the Federation to which the Union is affiliated. 3. Representative of the Indian Dairy Corporation/National Diary Development Board. 4. Representative of Government Chairman of the Union shall be the Convener of the above said Personnel Committee and the Managing Director so selected shall be appointed by the Chairman of the Union.” (Underline supplied) 12. After referring to the provisions in the bye-laws of the petitioner Union, the respondent would contend that, other than the aforesaid provisions, there is no other provisions in the byelaws for constitution of any other sub committees. Rule 47 of the Kerala Co-operative Societies Rules, 1969, which deals with custody of cash, security, records, sales, etc. of a Society. As per clause (d) of Rule 47, the committee of the Society shall primarily be responsible for the maintenance and safety of all accounts, cash and other assets of the Society and it shall be the duty of the committee to see that the officers concerned discharge their 9 WPC 2529 OF 2017 functions and perform their duties as laid down in the Rules and the bye-laws. When the bye-laws of the petitioner Union do not permit the Board to constitute sub committees other than the Personnel Committee provided under Clause 21.2.13 and that under clause 21.2.15, the constitution of any other sub committee by the Board of the Union is _per se_ illegal. The respondent has issued Ext.P1 Circular in order to ensure that the functioning of the Regional Unions, including the petitioner Union, is in accordance with the provisions under the Act, Rules and also the bye-laws. The respondent would also point out that as per clause (m) of sub-rule (1) of Rule 5 of the Kerala Co-operative Societies Rules, the bye-laws of the Society shall deal with the constitution and reconstitution of the Committee and removal of officers, duties and powers of the committee and the officers. Therefore, the committee constituted under Section 28 of the Act and as provided in the bye-laws, does not take into account any sub committees other than those specifically empowered under the provisions of the bye-laws and subject to the mandate of the provisions under the Act and Rules made thereunder. 10 WPC 2529 OF 2017 13. Along with the additional counter affidavit filed by the respondent, a copy of letter dated 12.01.2018 of the National Dairy Development Board has been placed on record. The said communication is one issued by the National Dairy Development Board based on an expert opinion sought for by the respondent Director of Dairy Development in the formation of sub committees in the Regional Co-operative Milk Producers Unions in Kerala. In Ext.R1(d) communication, the National Dairy Development Board has clarified that, any dairy co-operative, to function efficiently, there should be a clear demarcation in the roles and responsibilities of elected representatives of farmers and professionals, who are engaged by them. The elected representatives in dairy co-operatives should confine themselves to issues relating to policy and governance. They should not involve themselves in the day-to-day functioning of the cooperative and therefore their presence in any committees constituted for various purposes including personnel and purchase is not desirable. These committees should necessarily comprise of professionals with relevant qualifications and 11 WPC 2529 OF 2017 experience. By delegating the authority to take decision in such matters by the elected representatives dilutes accountability of Executives and it is not desirable. The respondent would contend further that, it is in exercise of the powers under Section 66 of the Act, that the respondent has issued Ext.P1 circular, which was followed by Ext.P3 order; which are perfectly legal and within the powers of the respondent. 14. Chapter IV of the Kerala Co-operative Societies Act deals with management of Co-operative Societies. As per subsection (1) of Section 27, subject to the provisions of the Act, Rules and the bye-laws, the final authority of the Society shall vest on the general body of the members. As per the proviso to sub-section (1), anything contained in sub-section (1) shall affect the exercise by the committee or any officer of the Society of any power conferred on such committee or such officer by the Act or the Rules or the bye-laws. Section 28 of the Act deals with appointment of a committee. As per sub-section (1) of Section 28, the general body of a Society shall constitute a committee for a period of 5 years, in accordance with the bye-laws and entrust 12 WPC 2529 OF 2017 the management of the affairs of the Society of such committee. 15. Section 66 of the Act deals with the supervision and inspection. As per sub-section (5) of Section 66, the Registrar or the person authorised by him under sub-section (1) or subsection (2) may, by order or in writing, direct the Society or its officers to take such action as may be specified in such orders within the time that may be mentioned in such order. Section 66A, which deals with powers of Registrar to give directions, provides that subject to the provisions of the Act and the Rules made thereunder, the Registrar may issue general directions and guidelines to any or all of the Co-operative Societies in furtherance of the purpose of the Act or for implementing Government policies for the benefit of the members and the general public. Rule 180 of the Kerala Co-operative Societies Rules makes it explicitly clear that no Society shall do any act which is not explicitly provided for by the bye-laws of such Society without the express sanction of the Registrar for the same. 16. In **Janardhanan v. Joint Registrar [1990 (1) KLT** 13 WPC 2529 OF 2017 **530]** , in the context of Rule 180 of the Kerala Co-operative Societies Rules, this Court held that the said Rule is intended to provide for extraordinary circumstances, where Society may have to act in a particular manner and the bye-laws are silent at that aspect, but it does not mean that an illegality once committed should continue to be committed in future to satisfy the nondiscriminatory mandate of Article 14. 17. In **Kurian v. Joint Registrar [1990 (1) KLT 618]** , this Court held that the Committee or Board of Directors of a Society constituted as per Section 28 of the Kerala Co-operative Societies Act, is the delegate of the general body of the Society, which cannot further delegate its duties. Paragraph 14 of the said decision reads thus; “14. As per the bye-laws of the Bank appointment to its staff is to be effected by the board of directors. Petitioners in O.P 9170/88 have not been appointed by the Board. Sub committee consisting of the President of the Bank and another member took decision to appoint them. The appointment made by such a committee cannot be taken as a valid one. As per Section 28 of the Act the general body of the society should constitute a committee in accordance with the bye-laws and entrust the management of the affairs of the society to such 14 WPC 2529 OF 2017 committee. So, the committee or board of directors of the society is the delegate of the general body of the society. It is trite law that a delegate cannot further delegate its duties. The bye-laws of the Bank specifically provide that the elected committee or the board of directors alone has got power to make appointment. The cumulative effect of the provisions contained in the bye-laws and Section 28 of the Act is that the appointment to the bank should be done by the Committee or board of directors. The impugned appointments were not effected by the committee or board of directors. On this ground also it has to be held that the Bank did not act in accordance with the Act and bye-laws. So, the Joint Registrar was acting within his power when he directed the committee to revoke the orders of appointments.” (Underline supplied) 18. In **Kurian's case** _**sup**_ **ra** this Court has also held that though a Co-operative Society must have freedom of activities, the officers of the Department and the Government are not to take action interfering with the autonomy of the societies. It does not mean that the Society can act in any manner ignoring the provisions of the Act and the direction given by the Registrar of Co-operative Societies. Only when a Co-operative Society acts within its jurisdiction, in conformity with the provisions of the Act and the general directions by the Registrar, can they claim 15 WPC 2529 OF 2017 freedom from interference. When they violate the provisions of the bye laws and the Act in an arbitrary manner, their actions will be subject to the supervisory control of the authorities under the Act. The committee cannot act against the interest of the society with immunity. If they resort to activities prejudicial to the interest of the Society, the Registrar must have the power to curb and curtail their freedom. Paragraph 15 of the said decision reads thus; “15. It is true that a co-operative society must have freedom of activities. Officers of the Department and the Government are not to take action interfering with the autonomy of the societies. This does not mean that the society can act in any manner ignoring the provisions of the Act and the directions given by the Registrar of Cooperative Societies. Only when a co-operative society acts within its jurisdiction, in conformity with the provisions of the Act and the general directions by the Registrar, can they claim freedom from interference. When - they violate the provisions of the bye laws and the Act in an arbitrary manner, their actions will be subject to the supervisory control of the authorities under the Act. The committee cannot act against the interest of the society with immunity. If they resort to activities prejudicial to the interest of the society, the Registrar must have the power to curb and curtail their freedom. In the instant case the applications of eligible candidates were rejected. Persons who were 16 WPC 2529 OF 2017 summoned for written test were not informed of the interview that was to follow the test on the same day. These actions of the board were in violation of the specific directions given by the Registrar. Such actions have gone to materially affect the selection. So, the selection has to be cancelled. Ext. P6 is an order in that direction. I do not find any ground to interfere with the same.” (Underline supplied) ## 19. In **Raghavan Nair v. Joint Registrar of** **Coop.Societies [1998 (2) KLT 1068]** , this Court held that the registration of a society shall render it a body corporate by the name under which it is registered, having perpetual succession and a common seal and with power to hold property, enter into contracts, institute and defend suits and other legal proceedings and to do all things necessary for the purposes for which it was constituted. Under Section 27 of the Act, the final authority of a Society shall vest in the general body of its members, subject to - the provisions of the Act, Rules and bye laws. The general body of a Society shall constitute a committee in accordance with the - bye laws and entrust the management of the affairs of the Society to such committee. Management of Co-operative Societies is dealt with in Chapter IV of the Act. Section 27 says 17 WPC 2529 OF 2017 that subject to the provisions of the Act, the Rules and the byelaws, the final authority of a Society shall vest in the general body of its members. Section 28 of the Act says that the general body of a Society shall constitute a committee for a period not exceeding three years (five years with effect from 01.01.2000) in accordance with the bye laws and entrust the management of the affairs of the society to such committee. Therefore statue has recognised the general body of members as the final authority of the Society, of course, subject to the provisions of the Act, Rules - and bye laws. Section 28 also recognise the fact that it is that final authority to entrust the management of a Co-operative Society to a committee. In other words, even in the matter of appointment and allied matters, final authority is the general body of a Society. In order to manage the affairs of a society, general body constitutes a committee and entrust the management of the affairs of the Society to that committee. 20. In **Thrissur District Co-operative Bank Staff Association v. Registrar of Co-operative Societies, Tvm. And others [2012 (4) KHC 562]** , a Division Bench of this 18 WPC 2529 OF 2017 Court held that delegation by the Managing Committee of the - Society is neither permissible under the scheme of the Kerala Co operative Societies Act or under the original bye-laws of Thrissur District Co-operative Bank, the 3[rd] respondent in that writ appeal. Paragraphs 3 and 4 of the said decision reads thus; “3. After hearing both sides, we feel the delegation by the managing committee is neither permissible under the scheme of the Co-operative Societies Act or under the original bye laws of the Bank. Even though the ultimate power of Bank is with general body, Section 28 of the Kerala Co-operative Societies Act authorises the General body to constitute the managing committee and entrust the management of the affairs of the society to such committee. Of course wherever provisions of the Act and Rules and bye laws required ratification of the decisions of the managing committee by the general body, the same is done. However, question raised is whether the managing committee which is the delegate of the general body can further delegate important functions like loan sanctioning to sub committees constituted by them that too only with employees. 4. It is settled position under the scheme of the Cooperative Societies Act that Societies are run democratically by elected bodies namely managing committee elected by the general body. Managing committee itself is a delegate of the general body and therefore they cannot delegate essential functions entrusted in them under the bye law further to another 19 WPC 2529 OF 2017 delegate constituted by them. Sanctioning of loan probably is the most important and sensitive work because if loans become bad, Bank will suffer and high bad debt will lead to even closure of the Bank. Sanctioning of the loan is certainly a managerial function which cannot be delegated to clerical staff of the Bank. Secretaries and Managers are certainly officers of the Co-operative Bank and there is nothing wrong in utilizing their experience and services by the managing committee by co-ordinating them in granting the loan. However, there is no scope for completely eliminating members of the managing committees from the committees and sub committees constituted for sanctioning of loan. Of course surcharge proceedings under Section 68 entitles recovery of misappropriated funds from the members of the managing committee and even from employees. However we do not think Section 68 contemplates recovery of liability for bad debts from clerical staff and so much so they cannot be entrusted with the responsibility of sanctioning loan. They are also not the people with the required education or ability to appraise the genuineness of the loan or credibility of the borrower. We therefore feel that the best way is to provide for sanctioning of big loans above a limit only by the managing committee in their full meeting who will take assistance from legal advisors and the managerial staff. However, it may not be possible for the Bank to have every loan application placed before the full committee for sanctioning. So much so delegation could be possible by constituting sub committee with atleast two members of the Bank and along with them probably Secretaries, Managers or even Assistant Managers. 20 WPC 2529 OF 2017 Further, petty loans could be authorised to be approved by General Managers or even Branch Managers under proper guidelines. We do not know whether bye law similar to one challenged in this case is there in the Co-operative Banks in other districts. In any case we feel the managing committee cannot throw the blame on bad debts arising from loans to low level employees of any society. We feel the Registrar of Cooperative Societies should look into the matter and he can probably issue instructions under Section 66A of the Kerala Co-operative Societies Act giving guidelines with regard to delegation of powers for sanctioning loan so that not only this Bank, but other societies can make uniform pattern of bye laws in a rational manner completely exonerating clerks, cashiers and staff other than officers from being members of the committees to sanction loans. We accordingly dispose of the writ appeal by vacating judgment of the learned Single Judge and by setting aside the order of the Registrar approving the bye law and by remanding the matter to the Registrar of Co-operative Societies for a re-consideration after hearing association of employees and Association of managerial staff of the Bank.” 21. In the instant case, the petitioner Union moved this writ petition with a specific contention that the constitution of sub-committees are as provided in the bye-laws and as such, the respondent has no power to issue directions to scrap such sub committees. However, the relevant extracts of the bye-laws of 21 WPC 2529 OF 2017 the petitioner Union, which are placed on record along with the counter affidavit of the respondent, would make it explicitly clear that it contemplates constitution of Personnel Committees under clause 21.2.13 and clause 21.2.15 for the matters specified therein, i.e., for recommending staff rules, staff requirements, etc. and to recruit suitable candidates. The Personal Committee under clause 21.2.15 is for selection and recruitment of Managing Director. Therefore, conclusion is irresistible that, the constitution of sub committees by the petitioner Union for purposes other than those permitted by clause 21.2.13 and 21.2.15 of its byelaws, are legally impermissible. In view of the law laid down by this Court in the decisions referred to supra, the Board of the petitioner Union, which is only a delegate of the general body cannot further delegate its duties. When the Board of the petitioner Union constituted sub committees in violation of the statutory provisions and also the bye-laws of the Union, its action will certainly be subject to the supervisory control of the authorities under the Act. Therefore, the respondent is justified in issuing Ext.P1 Circular and Ext.P3 order, whereby it is made clear 22 WPC 2529 OF 2017 that constitution of such sub committee is illegal and as such, they have to be scraped. In such circumstances, the challenge made in this writ petition against Ext.P1 Circular dated 22.08.2016 and Ext.P3 order dated 03.11.2016 issued by the respondent Director of Dairy Development fail and the writ petition is accordingly dismissed. No order as to costs. Sd/- **ANIL K. NARENDRAN JUDGE** **yd** 23 WPC 2529 OF 2017 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXHIBIT P1 A TRUE COPY OF THE CIRCULAR NO.13/2016 DATED 22.8.2016 OF THE RESPONDENT.** **EXHIBIT P2 A TRUE COPY OF THE REPLY DATED 5.9.2016 BY THE PETITIONER.** **EXHIBIT P3 A TRUE COPY OF THE ORDER DATED 3.11.2016 OF THE RESPONDENT. RESPONDENTS' EXHIBITS: EXHIBIT R(A): TRUE COPY OF THE RELEVANT PAGE OF THE BY-LAW** **EXHIBIT R(B): TRUE COPY OF THE RELEVANT PAGE OF THE BYE-LAW PROVISION.** **EXHIBIT R(C): TRUE COPY OF THE RELEVANT PORTION OF THE BYELAW.** **EXHIBIT R1(D) TRUE COPY OF THE LETTER OF NATIONAL DAIRY DEVELOPMENT BOARD DATED 12-01-2018** **EXHIBIT R1(E) TRUE COPY OF THE LETTER DATED 19-03-2018 OF THE MANAGING DIRECTOR OF MILMA**