V. Prabhakaran Pillai v. Assistant Registrar of Co-operative Societies (General), Mavelikkara; Joint Registrar of Co-operative Societies (General), Alappuzha; Registrar of Co-operative Societies, Thiruvananthapuram; State of Kerala; Addl R5 (Jyothi Madhu)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **TUESDAY, THE 14TH DAY OF MARCH 2017/23RD PHALGUNA, 1938** ## **WP(C).No. 2719 of 2017 (L)** ## **---------------------------** ## **PETITIONER:** ## **----------** **V.PRABHAKARAN PILLAI, PRESIDENT, MAVELIKARA TALUK CO-OPERATIVE BANK LTD. NO.707, PULIMOODU JUNCTION, MAVELIKARA, ALAPPUZHA DISTRICT.** **BY ADVS.SRI.V.G.ARUN** **SRI.T.R.HARIKUMAR** ## **RESPONDENT(S):** ## **--------------** **1. THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) MAVELIKARA, ALAPPUZHA - 690 101.** **2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) ALAPPUZHA - 688 001.** **3. THE REGISTRAR OF CO-OPERATIVE SOCIETIES THIRUVANANTHAPURAM -695 001.** **4. STATE OF KERALA** - **REPRESENTED BY THE SECRETARY, CO-OPERATION (C)DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM -695 001.** *** ADDL R5 IMPLEADED** **5. JYOTHI MADHU, W/O MADHUSOODANA KURUP, AGED 50 YEARS, THAZHAVANA, PUTHENKOTTAKKAM, CHENNITHALA PO, MAVELIKKARA, ALAPPUZHA DISTRICT 690105.** - **ADDL R5 IS IMPLEADED AS PER ORDER DATED 14.3.2017 IN IA NO 1516/2017** - **R1 TO R4 BY SPECIAL GOVERNMENT PLEADER SRI K.S.MUHAMMED HASHIM R5 BY ADV. SRI.GEORGE POONTHOTTAM** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03-02-2017, THE COURT ON 14.03.2017 DELIVERED THE FOLLOWING:** **K.V.** ## **WP(C).No. 2719 of 2017 (L) ---------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** **-----------------------** - **P1 A TRUE COPY OF THE COMMUNICATION DATED 22.12.2016 ISSUED BY THE SECRETARY OF THE SOCIETY.** - **P2 A TRUE COPY OF THE LETTER ISSUED BY THE NAIVE PLUS SOFTWARE SOLUTIONS (P) LTD TO THE SOCIETY DATED 30.12.2016** - **P3 A TRUE COPY OF THE RESOLUTION NO.1 DATED 31.12.2016 TAKEN BY THE MANAGING COMMITTEE OF THE SOCIETY** - **P4 A TRUE COPY OF THE COMPLAINT SUBMITTED BEFORE THE SUPERINTENDENT OF POLICE, ALAPPUZHA DATED 31.12.2016** - **P5 A TRUE COPY OF THE ORDER NO.CRP(2)6713/2016 DATED 26.12.2016 ISSUED BY THE 2ND RESPONDENT** - **P6 A TRUE COPY OF THE SHOW CAUSE NOTICE NO.CRP(2)6713/2016 DATED 19.01.2017 ISSUED BY THE 2ND RESPONDENT** - **P7 A TRUE COPY OF THE AUDIT CERTIFICATE FOR THE YEAR 2015-2016 DATED 30.11.2016** - **P8 A TRUE COPY OF THE COMMUNICATION ISSUED FROM THE OFFICE OF THE DISTRICT POLICE CHIEF, ALAPPUZHA DATED 19.01.2017** - **P9 A TRUE COPY OF THE EXPLANATION SUBMITTED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 23.01.2017** ## **RESPONDENT(S)' ANNEXURES** - **-----------------------** - **R2(A) COPY OF THE PROCEEDINGS OF THE 2ND RESPONDENT DATED 29.12.2016 GRANTING FINANCIAL ASSISTANCE TO THE BANK.** - **R2(B) COPY OF THE AUDIT CERTIFICATE AND AUDIT MEMORANDUM FOR THE YEAR 2015-2016.** - **R2(C) COPY OF THE ORDER DATED 25.4.2014 ISSUED BY THE 3RD RESPONDENT.** **/TRUE COPY/** **P.A.TO JUDGE** **K.V.** _**C.R.**_ ## **P.B.SURESH KUMAR, J.** ## **= = = = = = = = = = = = =** ## **WP.(C).No.2719 of 2017-L.** ## **= = = = = = = = = = = = =** Dated this the 14[th] day of March, 2017. ## **J U D G M E N T** The petitioner is the President of Mavelikkara Taluk Co-operative Bank Ltd. ('the Bank'). The Bank is a co-operative society registered under the Kerala Co-operative Societies Act ('the Act'). Ext.P6 notice, by which the second respondent has called upon the petitioner and other members of the managing committee of the Bank to show cause why the managing committee of the Bank shall not be superseded under Section 32 of the Act, is under challenge in this writ petition. 2. It is stated by the petitioner that the managing committee of the Bank has received information during December 2016 that the staff members of Thazhakkara branch of the Bank are indulging in various irregularities and acts of misappropriation. It is also stated by the petitioner that immediately thereupon, the Manager and two staff members of the said branch were placed under suspension. It is further stated that while so, an inquiry into the affairs of the Bank has **WP.(C).No.2719/2017-L.** 2 been ordered by the second respondent under Section 65 of the Act. Ext.P6 notice was issued thereafter by the second respondent stating that misappropriation to the tune of Rs.28,23,87,684/- was found in the inquiry; that the managing committee of the Bank is responsible for the loss caused to the Bank and that therefore, they are liable to be superseded. According to the petitioner, Ext.P6 notice is one issued without jurisdiction. Hence, this writ petition. 3. A statement has been filed in this matter on behalf of the second respondent. 4. Heard the learned counsel for the petitioner as also the learned Special Government Pleader. 5. Being conscious of the limited grounds available to sustain a challenge against a show cause notice, in a proceedings under Article 226 of the Constitution, the learned counsel for the petitioner has raised only two contentions. The first contention was that the petitioner and others were not heard on the report of inquiry relied on in the show cause notice as provided for under Rule 66(5) of the Kerala Co-operative Societies Rules and therefore, the same cannot be the basis of a **WP.(C).No.2719/2017-L.** 3 proceedings under section 32 the Act. The second contention is that the Bank does not have any Government share holding and it is not enjoying any loan or financial assistance or guarantee from the Government or any Board or institutions constituted by the Government and therefore, the proceedings under Section 32 of the Act is hit by the third proviso to Section 32(1) of the Act. 6. Per contra, the learned Special Government Pleader contended that it is not necessary to give notice of the report of inquiry under Section 65 of the Act to the members of the managing committee of the Bank before it is acted upon. It was also contended by the learned Special Government Pleader that the Bank is enjoying financial assistance and guarantee from the Government in various forms and therefore, its managing committee is not entitled to the benefit of the third proviso to Section 32(1) of the Act. 7. The first issue to be considered is whether a report in an inquiry under Section 65 of the Act in respect of which notice has not been given to the members of the managing committee of the society under Rule 66(5) of the Rules can be acted upon for the purpose of the proceedings under Section 32 **WP.(C).No.2719/2017-L.** 4 of the Act. It is seen that the said issue has been dealt with by a Division Bench of this Court in **State of Kerala v. Aravindakshan Nair** (2010 (3) KLT 11). It is held in the said case that since separate opportunity of hearing is provided for in the statute wherever action is contemplated based on a report of inquiry under Section 65 of the Act, the contention that report of inquiry under Section 65 of the Act cannot be acted upon without compliance of the provisions contained in Rule 66(5) of the Rules cannot be accepted. It is clarified by the Division Bench in the said case that the opportunity of hearing provided for under Rule 66(5) of the Rules is only for the purpose of ordering recovery of the cost of inquiry under Section 65 or the inspection under Section 66, as the case may be. The learned counsel has brought to the notice of this Court, a decision rendered by a later Division Bench of this Court in W.A.No.2198 of 2012. True, a contrary view is seen taken by the Division Bench in W.A.No.2198 of 2012 without noticing the decision in **State of Kerala v. Aravindakshan Nair** (supra). But, it is seen that the issue has not been considered by the Division Bench in W.A.No.2198 of 2012. On the other hand, the Division Bench in W.A.No.2198 of **WP.(C).No.2719/2017-L.** 5 2012 was proceeding as if the statute mandates an opportunity of hearing before a report under Section 65 of the Act is acted upon. The decision of this Court in **State of Kerala v. Aravindakshan Nair** being one in which the issue raised by the petitioner has been considered, this Court is bound by that decision. The first contention of the petitioner, therefore, fails. 8. The next issue to be considered is whether the managing committee of the Bank is entitled to the benefit of the third proviso to Section 32(1) of the Act. The third proviso to Section 32(1) of the Act reads thus: “Provided also that the Board of co-operative Society shall not be superseded or kept under suspension where there is no Government share holding or loan or financial assistance or any guarantee by the Government or any Board or institutions constituted by the Government.” This proviso, going by the plain meaning of the words used therein, is an exception to the substantive provision contained in section 32 (1) of the Act. As such, the scope of the proviso has to be examined having regard to the object of the substantive provision contained in section 32(1) of the Act. The scheme of the Act is that the societies registered under the Act shall be **WP.(C).No.2719/2017-L.** 6 governed by democratically elected managing committees. Section 32(1) of the Act, however, provides that if the managing committee makes persistent default or commits negligence in the performance of the duties imposed on it by the Act or does anything prejudicial to the interests of the society or wilfully disobeys or fails to comply with any lawful order or direction issued under the Act or makes any payment contrary to the Act or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence or misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, the Registrar may supersede the managing committee of the society. Going by the scheme of the Act, it is evident that the power conferred on the Registrar by the said Section is a power to be exercised in the grave situations referred to in the provision to protect the interests of the society and its members. In other words, the substantive provision contained in Section 32(1) of the Act is a provision intended to protect the interests of the members of the societies from the various acts and deeds of the managing committee which would prejudicially affect the members. In **WP.(C).No.2719/2017-L.** 7 other words, it is a protective clause. Since the substantive provision is a protective clause, it is settled that the provision including the provisos therein have to be interpreted liberally, keeping in mind the object of the substantive provision. A reading of the proviso indicates that it applies only to societies where there is no Government shareholding or loan or financial assistance or guarantee from the Government or from any Board or institutions constituted by the Government. While there cannot be any doubt that the first part of the proviso as regards the Government shareholding is a fact to be ascertained with reference to the date of supersession, there arises a doubt as to whether the second part of the proviso as regards loan and guarantee are also facts to be ascertained with reference to the date of supersession. In the absence of the expression 'financial assistance' in the second part, it would have been possible to come to the conclusion that the second part of the proviso as regards loan, financial assistance and guarantee are facts to be ascertained with reference to the date of supersession. But, the presence of the expression 'financial assistance' in the second part of the proviso indicates that the statutory intendment is to **WP.(C).No.2719/2017-L.** 8 exclude societies which are availing aid and assistance from the Government or from the Board and institutions constituted by the Government, from the scope of the proviso. Any other interpretation of the proviso would lead to a situation where societies which have been enjoying all throughout the various financial benefits extended by the Government and institutions constituted by the Government would come out of the ambit of Section 32(1) of the Act merely on the ground that they are not enjoying any loan, financial assistance or guarantee from the Government on the date of supersession, even while the circumstances referred to in Section 32(1) of the Act exist. Such situations would deprive the members of such societies the benefit of the protective clause contained in the statute. This Court, therefore, is of the view that the benefit of the proviso can be availed only by societies which are functioning independently without any aid or assistance from the Government or from Boards and institutions constituted by the Government. The issue whether the Bank is entitled to the benefit of the third proviso has to be understood in the above background. 9. The official respondents have no case that the **WP.(C).No.2719/2017-L.** 9 Bank is having any Government share holding. But, according to them, the Bank has been enjoying financial assistance in various forms from the Government all throughout like any other society registered under the Act. To demonstrate the same, it is stated by the official respondents in the statement filed in this matter that the Government have under a scheme extended financial assistance to co-operative societies who have given loans to the members of Scheduled Caste and Scheduled Tribe communities to the extent of the outstanding in their loan accounts, after the expiry of the term of the loans and that a sum of Rs.94,848/- has been received by the Bank from the Government by way of assistance under the said scheme. The learned counsel for the petitioner vehemently contended that the said financial assistance is one extended by the Government to the members of the Scheduled Caste and Scheduled Tribe communities and the same cannot be treated as a financial assistance extended to the Bank. True, the financial assistance received by the Bank under the scheme of the Government referred to above had the effect of absolving the loanees of the co-operative societies from their liability to liquidate the loan **WP.(C).No.2719/2017-L.** 10 outstanding. But, at the same time, with the assistance, the societies could realise the outstanding dues in their loan accounts. If the intention of the Government in introducing a scheme of the nature referred to above is to provide financial assistance to the members of the Scheduled Caste and Scheduled Tribe communities, there was no need at all to disburse the same to the societies. From the mere fact that the amounts payable under the scheme has been paid to the societies, it is clear that the object was to provide financial assistance to the societies and absolve them from the possible loss that may arise on account of their inability to realise the loan outstanding from the members of Scheduled Caste and Scheduled Tribe communities. Viewed in that perspective, I am of the view that the said financial assistance would take the Bank out of the purview of the third proviso. 10. The Government have framed a scheme called Deposit Guarantee Scheme by notification in the Gazette as provided for under Section 57B(1) of the Act. The purpose of the scheme is to guarantee the repayment of the deposits received by co-operative societies covered by the scheme. The corpus of **WP.(C).No.2719/2017-L.** 11 the scheme is created by the contributions received from the societies and also by the contribution made by the Government. If any society covered by the scheme is unable to make the payment due to the depositors due to embezzlement theft, fire or such other similar causes, the amounts due to them will be paid as per the provisions of the scheme from its corpus. The official respondents contended that the said scheme applies to the Bank; that the deposits maintained by the Bank running to several crores of rupees are covered by the said scheme and that the Bank, therefore, cannot claim the benefit of the third proviso. The fact that the deposits of the Bank are covered by the said scheme is not in dispute. The contention raised by the learned counsel for the Bank, however, was that the corpus of the scheme is created with the contribution made by the member societies and therefore, it cannot be contended that the Government guarantees the repayment of the deposits under the scheme. I do not agree. The scheme though provides that the Government may contribute to the corpus of the scheme, there is nothing on record to indicate that the Government has in fact contributed any amount to the corpus of the scheme. Be that as **WP.(C).No.2719/2017-L.** 12 it may, the Government has framed a scheme to extend the guarantee to the depositors of societies. Though there is no Government guarantee strictly in terms of the scheme for the deposits, the provision in the scheme that the Government may contribute to the corpus of the scheme indicates that the Government will contribute to the corpus of the scheme, if circumstances warrant. Otherwise, there is no reason to incorporate such a clause in the scheme. Looking at that perspective, I am of the view that it can be safely concluded that the Government extends guarantee for the deposits covered by the scheme. In so far as the Bank is the beneficiary of the said scheme and enjoying the Government guarantee for its deposits, the Bank cannot claim the benefit of the third proviso. Further, the Bank being the beneficiary of the scheme, it cannot be contended that the depositors of the Bank have not taken into account the said aspect while making the deposits in the Bank. If it is held that the provisions of the scheme does not constitute a guarantee from the Bank within the meaning of the third proviso, the persons who have made deposits in the Bank, having regard to the provisions contained in the scheme, will be deprived of the **WP.(C).No.2719/2017-L.** 13 protection of Section 32(1) of the Act. For this reason also, according to me, the Bank cannot claim the benefit of the proviso. For the reasons stated above, there is no merit in the writ petition and the same is, accordingly, dismissed. _**Sd/-**_ **P.B.SURESH KUMAR, JUDGE.** _**Kvs/-**_ _**// true copy //**_