W.P.(C) No. 23615 of 2008 (J) - Board of Directors of the Mukkom Service Co-operative Bank Ltd & the Mukkom Service Co-operative Bank Ltd v. Joint Registrar of Co-operative Societies (General), Kozhikode; Karassery Service Co-operative Bank Ltd; State of Kerala; Registrar of Co-operative Societies

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN** **TUESDAY, THE 30TH SEPTEMBER 2008 / 8TH ASWINA 1930** **WP(C).No. 23615 of 2008(J)** **----------------------------------------** **PETITIONERS:** **----------------------** ## **1. BOARD OF DIRECTORS OF THE MUKKOM** **SERVICE CO-OPERATIVE BANK LTD. NO.F 1241, P.O.MUKKAM, KOZHIKODE, REPRESENTED BY ITS PRESIDENT.** **2. THE MUKKOM SERVICE CO-OPERATIVE BANK LTD. NO.F 1241, P.O.MUKKAM, KOZHIKODE, REPRESENTED BY ITS SECRETARY.** **BY ADV. SRI.KRB.KAIMAL (SR.) SRI.T.R.HARIKUMAR SRI.V.G.ARUN** **RESPONDENTS:** - **-------------------------** **1. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) KOZHIKODE.** **2. THE KARASSERY SERVICE CO-OPERATIVE BANK LTD NO. D.2628, KARASSERY, KOZHIKODE, REPRESENTED BY ITS SECRETARY.** **3. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, CO-OPERATION DEPARTMENT, TRIVANDRUM.** **4. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, TRIVANDRUM.** **GOVERNMENT PLEADER SRI.I.V.PRAMOD FOR R1,R3 & R4 ADV. SRI.P.RAVINDRAN (SR.) FOR R2 SRI.ANIL SIVARAMAN FOR R2** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25/09/2008, THE COURT ON 30/09/2008 DELIVERED THE FOLLOWING:** Kss ## **WPC.NO.23615/2008 J** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **EXT.P1: COPY OF THE RELEVANT PAGES OF THE BYE-LAWS OF THE PETITIONER BANK.** - **EXT.P2: COPY OF THE RELEVANT PAGES OF THE BYE-LAWS OF THE 2ND RESPONDENT BANK.** - **EXT.P3: COPY OF THE TEXT OF BYE-LAW AFTER AMENDMENT. EXT.P4: COPY OF THE JUDGMENT IN WA.1167 OF 2006 DTD. 13/1/2006. EXT.P5: COPY OF THE NOTICE DTD. 12/05/2008. EXT.P6: COPY OF THE NOTICE DTD. 9/01/2008. EXT.P7: COPY OF THE NOTICE DTD. 27/02/2008. EXT.P8: COPY OF THE NOTICE DTD. 23/04/2008. EXT.P9: COPY OF THE ORDER NO.13801/C3/2005/CO-OP. DTD.20/04/2007. EXT.P10: COPY OF THE REPRESENTATION DTD. 9/05/2007.** - **EXT.P11: COPY OF THE ARGUMENT NOTE FILED IN APPEAL 6336/C3/07 BEFORE THE GOVT.DTD. 7/06/2008.** - **EXT.P12: COPY OF THE NOTICE NO.4030/C4/2008/CO-OP. DTD.17/05/2008.** - **EXT.P13: COPY OF THE REQUEST DTD. 22/05/2008.** - **EXT.P14: COPY OF THE ORDER G.O.(MS) NO.424/08/CO-OP. DTD. 4/07/2008.** ## **RESPONDENT'S EXHIBITS:** - **EXT.R2(A): COPY OF THE RELEVANT EXTRACT OF THE BYE-LAW OF THE 2ND PETITIONER SOCIETY.** - **EXT.R2(B): COPY OF THE RELEVANT EXTRACT OF THE BYE-LAW OF THE 2ND RESPONDENT SOCIETY.** - **EXT.R2(C): COPY OF THE ORDER OF THE 1ST RESPONDENT DTD.1/03/2006.** - **EXT.R2(D): COPY OF THE RELEVANT EXTRACT OF THE PASS BOOK ISSUED BY THE 2ND PETITIONER ACCOUNT NO.720.** - **EXT.R2(D)(1):COPY OF THE RELEVANT EXTRACT OF THE PASS BOOK ISSUED BY THE 2ND PETITIONER ACCOUNT NO.681/07-08.** - **EXT.R2(D)(2):COPY OF THE RELEVANT EXTRACT OF THE PASS BOOK ISSUED BY THE 2ND PETITIONER ACCOUNT NO.816/07-08.** **/TRUE COPY/** **P.S.TO JUDGE** **kss** ## THOTTATHIL B. RADHAKRISHNAN, J. = = = = = = = = = = = = = = = = = = = = = = = = W.P.(C).No.23615 of 2008-J = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 30[th] day of September, 2008. ## JUDGMENT 1.The second petitioner and the second respondent are service co-operative banks registered under the Kerala Co-operative Societies Act, 1969, hereinafter referred to as the “Act”. The area of operation of the second petitioner is the Mukkam panchayat limits and the area of operation of the second respondent is the Karassery panchayat limits, going by the averments in paragraph 1 of the writ petition. The second petitioner originally had Thiruvampady, Kodiyathur and Karassery panchayat limits also within its area of operation and later, Karassery panchayat was earmarked as the area of operation of the second respondent and Thiruvampady and Kodiyathur panchayat limits became the area of operation of Thiruvampady Service Co-operative Bank and WP(C)23615/2008 -: 2 :- Kodiyathur Service Co-operative Bank. The second petitioner was registered in 1956 under the Act and the second respondent, in 1995. 2.The second respondent purchased an item of property having an extent of 18.980 cents in Thazhekkode amsom which falls within the area of operation of the second petitioner. The first respondent Joint Registrar accorded sanction for such purchase. The second petitioner's challenge to that was repelled by the Division Bench as per Ext.P4 judgment holding that the area of operation is a concept different from establishment of an administrative office and therefore, the second respondent cannot be prevented from establishing its head office within that piece of land despite the fact that it is within the area of operation of the second petitioner. It was accordingly held that the establishment of the head office of the second respondent within the area of operation of the second petitioner would not violate Section 7(1) WP(C)23615/2008 -: 3 :- (c) of the Act. The Bench made it clear that by establishing such head office, the second respondent shall not canvass any business from the area of the second petitioner and to that extent, prohibition under Section 7(1)(c) would certainly apply. - 3.In the meanwhile, on 1-3-2006, the first respondent rejected the request of the second respondent for amending its bye-laws to include 2.15.980 acres of land also within its area of operation which extent would also include the 18.980 cents purchased by the second respondent to house its head office. - 4.Ext.P9 evidences that the Government wrote to the Registrar of Co-operative Societies on 20-4-2007 stating that in view of Ext.P4 judgment holding that the establishment of the head office of the second respondent within the area of operation of the second petitioner would not violate Section 7 (1)(c), no exemption from the operation of that WP(C)23615/2008 -: 4 :- provision is required for such purchase. After that communication dated 20-4-2007, the President of the second respondent made Ext.P10 request to the Government supported by the Board's Resolution No.XIV dated 28-4-2007 requesting that the second respondent may be granted exemption from the provisions of Section 7(1)(c) of the Act in relation to 2 acres 15.980 cents lying adjacent to 18.980 cents purchased earlier and on which the head office stands. Acting on Ext.P10 and overruling the contentions of the second petitioner, the Government issued Ext.P14 order dated 4-7-2008 granting exemption from Section 7 (1)(c) of the Act, as sought for by the second respondent. This is under challenge. 5.In its gist, the contentions in support of the writ petition are that the second petitioner and second respondent are primary agricultural credit societies, having defined areas of operations and being societies of the similar type, there can be no overlapping of the areas of operation and that WP(C)23615/2008 -: 5 :- such principle has been completely ignored while passing the impugned Ext.P14 order and that the request for exemption stood rejected as per Ext.P9 and in the absence of a specific provision conferring a power of review, Ext.P14 order ought not to have been issued acting on Ext.P10 application for review of the decision contained in Ext.P9; and that in view of Ext.P4 judgment, the parties are categorically held to the situation that the permission granted to the second respondent to house its head office in the area of operation of the second petitioner is on the condition that the second respondent shall not carry on any business activities from the area of operation of the second petitioner and to that extent, the provision in Section 7(1)(c) would certainly apply. 6.The second respondent, in its counter affidavit, contends that Ext.R2(a) and R2(b), the respective bye-laws of the second petitioner and the second respondent, would show that D Class members of WP(C)23615/2008 -: 6 :- both the societies are spread over in different parts of Kozhikode taluk and therefore, there would virtually be no meaning in saying that the transactions are to be confined within a particular area and still further that the proposal is to have an outlet for transporting agricultural produce and the marketing complex and the head office are to be housed in the land in question, while there is no bus stand at Karassery, in the area of operation of the second respondent. It is also contended that the principle laid down by the Division Bench in Ext.P4 judgment governs the situation only as regards the applicability of Section 7(1)(c) and it does not, in any manner, impair the power of the Government to grant exemption to the second respondent from the provision of Section 7(1)(c) and still further that the impugned order of exemption is a controlled one, inhibiting the second respondent from doing any activities in banking in the area of operation of the second petitioner. WP(C)23615/2008 -: 7 :- 7.Section 7(1)(c) of the Act requires that the area of operation of a society and the area of another society of similar type do not overlap. There is no controversy that the second petitioner and the second respondent are societies of similar type. It is also not in dispute that the land in question falls within the area of operation of the second petitioner. - 8.Section 101 of the Act provides that the Government may, if they are satisfied that it is necessary to do so in public interest, by general or special order, for reasons to be recorded, exempt any society or any class of societies from any of the provisions of the Act or direct that such provisions shall apply to such society or class of societies subject to such modification as may be specified in the order. The power of the Government under Section 101 to grant exemption having been held to be constitutionally - - valid in Pampady Rural Co op. Housing Society v. WP(C)23615/2008 -: 8 :- Joint Registrar [1986 KLT 921], it was laid down in Joint Registrar v. M.R.Cherian and others [1994 (1) KLJ 603] that the modification that may be made in exercise of power under Section 101 should be confined to alteration of such character which keeps the policy of the Act in tact. While the learned senior counsel appearing for the petitioners referred to the judgment in - Q.T.L.C.& T.Co op. Society v. State of Kerala [1989 (1) KLT 350] laying down that public interest cannot be the interest of a particular society and that private interest of a particular society cannot be considered as a public interest, the learned senior counsel appearing for the second respondent referred to the judgment of the Division Bench in Feroke Service - Co op. Bank Ltd. v. State of Kerala [1995 (2) KLT 404] holding that the power under Section 101 is, in no way, limited or curtailed by Section 7(1) (c) of the Act and in view of the wide power given to the Government under Section 101, it cannot be held that in a particular situation WP(C)23615/2008 -: 9 :- where public interest demands, Section 7(1)(c) cannot be relaxed, though the power under Section 101 cannot be used by Government in a whimsical or arbitrary manner and could be exercised only in such cases where public interest demands the exercise of such power. 9.The learned senior counsel appearing for the petitioners argued that Ext.P10 is essentially an application for review of the decision contained in Ext.P9 and that it does not contain any reason for granting exemption which could be taken cognizance of, for the purpose of exercise of power under Section 101 of the Act and that the reasons stated in Ext.P12; in particular, the nature and lie of the property and the matters relating to the availability of road and river frontage etc., are not matters reflected in Ext.P10, wherein all that is stated is that the exemption is required for providing legal protection for the building that is proposed to be put up. It is also, pithily, pointed out that ## WP(C)23615/2008 -: 10 :- no public interest is ever demonstrated by the facts of the case in hand which, at the best, shows only a commercial interest of the second respondent, which is only its private interest and that the Government have acted in excess of authority under Section 101 of the Act. 10.The learned senior counsel appearing for the second respondent argued that the availability of power under Section 101 is beyond dispute and it has been fairly established that public interest is a concept that takes into consideration different aspects and that the requirement of movement of agricultural produce and other materials are matters of public interest, particularly when the entire area of operation of the second respondent is without any bus stand and access for appropriate movement of goods. He accordingly pointed out that the Government have rightly exercised the authority. It was further argued that the pleadings in the writ petition do not disclose that the impugned decision has, on WP(C)23615/2008 -: 11 :- facts, in any manner, impaired the existing activities of the petitioners and no case of injustice is, thus, demonstrated, warranting interference in exercise of jurisdiction under Article 226 of the Constitution of India. 11.The power under Section 101 of the Act, as enunciated in Feroke Service Co-op. Bank Ltd. (supra), was rendered taking note of the decision - of the Apex Court in Registrar, Co operative Societies v. K.Kunjambu {AIR 1980 SC 350) laying down that provision for such relaxation is made to enable the Government to relax the occasional rigour of the provisions of the Act and to advance the object of the Act. The Division Bench laid down as follows: “As the power given to the Government under S.101 of the Kerala Co-operative Societies Act can very well be exercised by the Government to advance the policy and objects of the Act and to safeguard public interest, it is not possible for us WP(C)23615/2008 -: 12 :- to hold that the power under S.101 is in any way limited or curtailed by S.7(1)(c) of the Act. As wide power is given to the Government under this Section taking into consideration the overall public interest it cannot be held that in a particular situation where public interest demands S.7(1)(c) cannot be relaxed. However, we make it clear the power under S.101 cannot be used by the Government in a whimsical or arbitrary manner. Only in such cases where public interest demands that the said power can be exercised.” 12.Considering the scope of Section 101 of the Act, it was laid down in Q.T.L.C.& T.Co-op. Society (supra) as follows: “As per that Section the Government are given power inter alia to exempt any society or class of societies from any of the provisions of the Act if they are satisfied that it is necessary so do to in the public interest. It means that for exercising the power u/s.101 of the act, the Government must be satisfied that there is necessity to invoke the WP(C)23615/2008 -: 13 :- provisions of that Section in the public interest. Public interest cannot be the interest of a particular society. The fact that a particular society is running at a loss is no ground to invoke the powers u/s.101 of the Act. Nor can that be treated as a ground for exempting it from the provisions of the Act in public interest.” 13.Dilating on Section 7(1) of the Act, it was further laid down in Q.T.L.C.& T.Co-op. Society (supra) as follows: “S.7(1) of the Act lays down five conditions to be satisfied for a society to get registration. One of the conditions is that the area of operation of the proposed society and the area of operation of another society of similar type should not overlap. This condition is a condition precedent for a co-operative society to come into existence. A co-operative society which has come into existence after complying with the above conditions cannot be allowed to violate the same. The WP(C)23615/2008 -: 14 :- power of the Government u/s. 101 should not be exercised in such a manner as to nullify the very condition, the compliance of which is mandatory for a society to come into existence. The power of the Government cannot be exercised to defeat such a salutary condition.” 14.Adverting to the various clauses in Exts.R2(a) and R2(b) bye-laws of the second petitioner and the second respondent respectively, it can be seen that their objects include provisions for collecting the produce of the members for sale, for purchase etc. and there can be no ground to state that the second petitioner does not have, as its objects, the marketing of agricultural produce. Ext.P10 does not show that the second respondent has purchased any item of property other than the 18.980 cents which it purchased for housing its head office, which purpose was recognized in Ext.P4 judgment as one not impinching Section 7(1)(c) of the Act. Beyond that, the request in Ext.P10 does not reflect WP(C)23615/2008 -: 15 :- anything other than the second respondent's commercial interests, which essentially are its private interests. Though Ext.P14 states that the agricultural marketing complex could be put up with funds provided by NABARD, such funds cannot be utilized beyond the area of operation of a society. The statements in Ext.P14 regarding the road, river, bus stand etc. relatable to the land, are not part of the materials reflected in Ext.P10. It is not in dispute that the area of operation of the second petitioner, at the time of its registration in 1956, was spread over the area of four panchayats, Mukkam, Thiruvampady, Kodiyathur and Karassery and later, Thiruvampady and Kodiyathur became the area of operation of Thiruvampady Service Co-operative Bank and Kodiyathur Service Co-operative Bank on their formation and Karassery became the area of operation of the second respondent. As discernible from the preamble of the Act, the enactment is made with a view to provide for the orderly development of the Co-operative sector in WP(C)23615/2008 -: 16 :- the State of Kerala. Competition between cooperative societies of same type, on account of the overlapping of their areas of operations cannot be held conducive for the orderly development of co-operative movement. This is the solemn object of Section 7 of the Act as held in Q.T.L.C.& T.Co-op. Society (supra), wherein it has been categorically laid down that the legislative direction contained in Section 7 cannot be nullified or defeated by the Government. This does not necessarily mean that Section 7(1)(c), in any manner, curtails the power under Section 101. That is why the Division Bench said in Feroke Service Co-op. Bank Ltd. (supra) that the power under Section 101 is wide and the Government can relax, in a particular situation, even the provisions contained in Section 7(1)(c), on taking into consideration the overall public interest, however that such power can be exercised only in cases where public interest demands. With this in view, it cannot but be held that the impugned decision has been WP(C)23615/2008 -: 17 :- rendered in violation of the interest of the second petitioner and has been made not on any ground referable to public interest but solely on the basis of the private interest of the second respondent. The impugned action is contrary to the basic principles of co-operation which ought to be the guiding beacon in exercise of power under Section 101 of the Act because equity, social justice and economic development as envisaged by the directive principles of State Policy of the Constitution of India are the objects sought to be achieved by the enactment of the legislation in hand; for the orderly development of the co-operative sector in the State, by organizing the co-operative societies as self governing, democratic institutions, going by the preamble to the Act. For the aforesaid reasons, the impugned order is contrary to law and has been issued in excess of authority under Section 101 of the Act and is, therefore, unconstitutional and void. It is WP(C)23615/2008 -: 18 :- declared so. Resultantly, this writ petition is allowed quashing Ext.P14. No costs. THOTTATHIL B. RADHAKRISHNAN, Sha/290908 JUDGE.